Do You Have What It Takes To Be An Angel Investor?
The fascination with startups continue to rise, making the prospect of becoming an angel investor an attractive endeavor. A number of angel investors have been employing online crowdfunding to pool money as angel networks hoping to share investment and risk. Because crowdfunding has given investing autonomy due to its ease of use, many may be joining the angel investing bandwagon without the background to follow through.
Not everyone with monetary resources have the skills, experience, and savvy to tackle the difficulties and headaches of being an angel investor. It can take a lot of revenue but that’s not all. Contrary to what some may think, money isn’t the only thing an angel has to possess in order to survive in the competitive landscape.
So what will you need to consider before you become an angel investor?
As a rule, successful people have more similarities than not, one being a temperament that can handle a lot of stress, worry, and volatility. Beyond money, angels have to be patient. Once they’re in, they’re all in for the long term. Results may not be seen for years. Though the media sensationalizes billion dollar unicorns in Silicon Valley, there are also startups that are slow-burner black horses. There can also be the possibility that the investment will not reap rewards at all. U.S. Census Bureau reports that an average of 50% of all startups go under within a few years. Only a small fraction provide the returns angels are looking for. The payoff could be 10–20 times the investment but the potential risks should be considered beforehand.
Invest Where You Know
Most angel investors stay in familiar territory, investing in industries they’re already familiar with. This provides a certain amount of comfortability, and a network that investing blind doesn’t offer. Many angel investors are repeat angels. What that means is that those with experience are armed with knowing what worked, what didn’t, and the warning signs of the latter quicker than those just starting out. Green investors should get the help of a seasoned angel, or spend some time (a lot of time) in the space before investing. Doing research is never a bad thing.
Though being an angel takes skills that aren’t confined to liquidity, money is mandatory. In theory, with $1 million in liquid net worth, you could become an angel investor, but you may want to save up more. If you are investing in young startups, it could be a risky gamble. If you’re used to being a person who diversifies, being an angel investor is a different game altogether. Diversification for an angel investor usually means investing on average $40K per company. If you’re thinking of retiring from the revenue generated from being an angel investor, you may want to re-think your strategy. Most angels can afford to take a loss, and generally have $5 million to $100 million in liquidity to wager.
Silicon Valley dominates United States angel investing with 39 percent of over $7bn invested in the U.S., but don’t pack your bags and move before you have all the facts. Almost anyone with money and insight can become an angel investor, but the ones who survive the sometimes unstable landscape of investing in startups need a lot more than just liquidity to succeed.
Larry Scheinfeld is a co-founder and partner of Zelkova Ventures. See more on his Venture Capital blog and be sure to follow him on Twitter.