Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups
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Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups
it is in your own best interest to be respectful of, and helpful to, every entrepreneur with whom you meet. This is true even (especially) for those in whose companies you decide not to invest. Many of the most prominent angel investors with high public profiles—something that helps them get directly approached with hot deals—got that way because
... See moreSo, I hear you ask, if investors are putting money into a company precisely because they believe its value will increase dramatically, why would they want to buy preferred stock as I just described it? The answer is, they don't. What investors in startups buy is actually a hybrid type of stock, called convertible preferred stock. The primary
... See moreBecause angel investing should be only one part of a well-balanced portfolio, most angels do not (and should not) invest more than 10 percent of their assets into such ventures. In fact, John Huston, the former Chairman of the Angel Capital Association, suggests that angels limit their annual early-stage investments to 10 percent of their free cash
... See moreFirst, keeping in mind that professional angel investing is a long-term activity, it is important to commit yourself to consistency over time. So let's say that you will be investing for five years (the typical active investing period of a venture capital fund). The amount you invest each year can be based on a percentage of your overall investment
... See moreThe short answer is virtually never. While there are, indeed, individuals who have put $1 million or more into one company, the vast majority of serious angel investors play with much smaller numbers. This is because investing at the seed and early stages of a company's life cycle is risky—the large majority of such investments fail completely.
... See moreTo recap: most startup businesses aren't worthy of investment, and no one, regardless of experience or expertise, is capable of routinely identifying which startups are worthy of investment and which are not. Despite these facts, angel investing—when done correctly—really can produce a consistent IRR in the 25 to 30 percent range. The way to
... See moreSo far, so good. But we're not quite done. The fact is that I was willing to invest in Company A at a time when that other investor was not, and the founders used my investment to make the company more valuable (and therefore got a high valuation from the other investor). It doesn't seem fair that I should bear the early-stage risk, yet get the
... See moreAngel investing (like venture capital) follows the classic J-curve. Because unsuccessful companies tend to fail early, and big exits from the successful ones tend to take a long time to develop, when you graph it on a timeline the overall value of an angel portfolio makes a shape like the letter “J.”
The biggest change in my investment approach over years as an angel investor is the one that all serious angels eventually arrive at. I've come to accept that, no matter how smart or experienced one is, there are too many exogenous factors affecting business outcomes for anyone to be able to pick only winners. Having now invested in more than 90
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