Want to Step Up Your Angel Investments Potential? This is All You Need!
A few years ago, Investing in startups was something reserved for those with substantial venture capital. Things have, however, improved in this space. Today, angel investing and venture capital are becoming mainstream investments.
In essence, angel investing involves putting money into a startup with a promising future. More and more investors are finding more opportunities, especially with the current crisis, when more startups need support.
But, what does angel investing entail? Let’s find out.
Why invest in startups?
There are many reasons why you should invest in a startup. Consider the following benefits.
Huge Profits. This is perhaps the primary motivator. Angel investment could have the highest ROI when the startup performs well. It’ll only take a viable idea and reliable execution for a startup to bear these fruits.
Portfolio Diversification. Venture capital is a powerful method to diversify your portfolio. Diversifying your portfolio help reduce risks while increasing the opportunity for high profits.
Venture capital is less expensive. Venture capital has changed from being a high-end venture for the “big boys” to a viable investment. You can now get control of a significant portion of a startup company with much less investment.
Buy-out potential. Large companies buy startups to avoid potential competition or are in pursuit of a technology created by the startup. You get great rewards when a business you invested in is purchased at a lucrative price.
Invest in a Better Future. By supporting startups, you become part of transforming an ever-evolving world. For instance, when you support an innovative climate idea, you become part of the efforts to avoid substantial potential damages of global warming.
Risks of investing in startups
Even with the above opportunities, Angel investments are considered high-risk ventures. This is partly because a large percentage of startups don’t succeed.
Unfortunately, there’s no way to predict whether a business you invest in will succeed to the point that you’ll get your returns back.
Consider the risks that face angel investors;
Loss of investment — A significant percentage of startup companies fail or don’t scale as planned. You will likely lose all, or a portion, of your investment. That said, only invest what you’re willing to lose.
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Lack of Liquidity. Liquidity is the ease with which you can sell your investments after you have purchased them. Angel investment has very low liquidity i.e., cannot be easily sold until you can be able to sell shares.
The rarity of dividends. Startups have no obligation to pay investors dividends. Initial Proceeds of a small business are usually re-invested to fuel growth and build shares value.
Risk of Dilution. Startups typically undertake several funding rounds. Dilution occurs when a company issues more shares in a funding round, thereby diluting the existing shareholders’ ownership value.
How to minimize the risks
There are several things an angel investor can do to minimize the risks of investing in a startup.
One of these is understanding the business. Some of the things to look for before investing in a startup includes;
- Business Goal — The startup’s five or ten years goal must be clear and realistic.
- Team — The founders must prove beyond doubt their ability and commitment to achieve the business goal.
- Market — The team should be in a position to explain the percentage of the market they plan to capture, how long it will take, and the potential they envision.
Understanding the business before pumping your funds is a great way to minimize risks. However, this may require another layer of expertise in business plan analysis.
That’s why working with experts in the field is the best and easiest way to reap the benefits discussed earlier. Where do I get this? You may ask!
Well, we’ve got a deal for you,
AngelsBootcamp is an exclusive one-day masterclass bringing together potential and experienced angel investors. I will provide you with real-life content ranging from sourcing top startups, running due diligence, negotiating term sheets to best tax-efficient investment structures.
The ideal participant will be interested in getting started with or expanding their early tech startup investments. More details about the event are available here.