Angel investors have become increasingly important as the small business and nonprofit communities grow, providing foundational capital and invaluable insight to help new entrepreneurs realize their vision. For aspiring angel investors, however, the journey to success rests on a separate set of considerations, each instilling the crucial knowledge and practical experience necessary to fund and champion tomorrow’s business community.
These fields include, but are not limited to:
Understanding the craft
A fundamental aspect of becoming an angel investor is understanding the craft’s differences from other investing strategies. In contrast to more back-end, stringent forms of investing, angel investing tends to occur at the seed or pre-seed stage of a company’s lifecycle, when the involved business is still in its conceptual infancy. As a result, angel investors incur both higher risk and higher potential returns on investment (ROIs) due to their often nascent ventures. Angel investing also entails direct involvement with funded companies, offering hands-on advice and guidance through each company’s formative stages. These characteristics culminate in a longer-term commitment – usually five to 10 years – allowing the new business ample time to mature.
Gaining proper experience
Those interested in angel investing must exhibit appropriate educational and experiential credentials to carve a professional niche. Beyond these fundamentals, angel investors must earn accreditation by meeting criteria pertaining to income, foundational knowledge, and other key fields. Broadly speaking, aspiring angel investors should also verse themselves in the underlying principles of start-up investing, risk management, and portfolio diversification. Once these pieces are aligned, investors can comfortably seek out angel investing groups and other affiliated networks to forge helpful connections and seek out further educational and mentorship-based opportunities.
Becoming involved
Angel investing requires a certain level of ambition, courage, and forward-thinking – and the first step toward honing these traits is becoming involved in the angel investing landscape early and often. Rising angel investors should leverage their newfound knowledge to identify promising ventures, not shying away from unconventional or radical ideas while also performing due diligence and high-level research to better inform their decision-making. These steps may include reviewing pitch decks, meticulously evaluating risks and potential challenges, completing background checks of involved leadership and personnel, and ultimately negotiating structural conditions of the deal. Each time an angel investor goes through this process, they will gain additional experience and insight that may benefit future portfolio additions.
As the angel investing community grows in popularity, the above considerations serve as stepping stones toward viability and efficacy. Rising angel investors will undoubtedly play an important role in spurring progressive, innovative businesses and initiatives to achieve their most ambitious goals.