Self-Analyze Your Finances and Set Your Goals
Looking at your finances and where you stand is a good place to start. Figure out what percent of your portfolio or amount of money you are willing to invest in early-stage startups. Consider what that looks like, for you personally, in the short term (next 12 months) and long term (5 years).
After this, you can look at your life and career goals—what do you want to accomplish at this stage?
“I started [angel investing because I wanted to diversify my retirement portfolio,” said Monique Maddox, CEO & Founding Principal of Macrame Technologies and Minnesota angel investor. “I had maxed everything else out, [and] saw this as an opportunity…participating in a fund is an easy way to do it,” she added.
Make a point to revisit your goals and continue to steadily build out your portfolio.
Find where to start
Like anything else in life, you must start somewhere. In fact, every investment made or passed on is an opportunity to learn how to improve for future deals.
Learning from other individuals or groups of investors is also a great option. "Joining as an LP in funds or in angel groups like Gopher Angels, [are] great ways to learn if you can get involved in the diligence process," said Daren Cotter, Founder & CEO of Inbox Dollars and angel investor.
“Look into platforms where you can invest less and learn more,” he said. Investing alongside others with more experience or who have a different perspective on investment opportunities can accelerate this learning.
Know what to look for
This is an important one—many investors would agree that a fair return for the perceived risk taken is table stakes for any investment. If this isn’t a fair tradeoff, the deal is over before even starting. Try to calculate risk by including factors like deal terms, market opportunity, timing, competition, and competitive advantage.
Another factor that investors need to evaluate are the people behind the company.
"Early-stage is all about the founder - do you believe in them? Founders need to prove if they are coachable; sometimes their passion will be so focused on the product and not the business and that can be a red flag,” said Genevieve Gilbreath, Co-Founder of Springdale Ventures and angel investor. “Can they build the business and the team to attract the right talent and customers?”
This can be tricky to evaluate in businesses that are just starting out. “Early-stage [startups] do not have the money for a big team. [A] team means [management, plus] advisors or members who may or may not have equity at this point,” said Kathy Tune, CFO of Odanata Health, Inc and angel investor. “[The] founder and team need to be resilient.”
Team evaluation will always differ from investor to investor, and each will have their own mix of qualitative considerations when assessing teams. However, what differentiates a novice investor from a pro is a solid thesis: narrow down what matters to you, test it, refine it, build your model and process, and never let go.
Never stop learning
Being a lifelong learner, and being willing to unlearn things, isn’t just a good idea for angel investing. Almost everything in life can be approached this way.
Specifically for angel investing, when this mindset is embraced it can be the fun part—just when you think you’ve got it down, another idea, startup, or business model, might come along that changes everything.
“Nothing is static, everything is always changing; [it's a] constant learning process when it comes to angel investing,” said David Russick, Co-Founder of Gopher Angels.
From industries to deal structures, startup conditions to communities, the landscape is always shifting. But with the right people, this can be the best part.