4 Tips For Beginning As An Angel Investor

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If you are looking for a new investment vehicle and you aren't risk averse, angel investing may be the thing for you. An angel investor is someone that provides the seed capital for a startup venture. This is typically done in exchange for ownership equity, although the terms can vary. The following tips can help you get started wisely if this is something that interests you.

Tip #1: Have liquid cash

The startup community is relatively intertwined, which means everyone knows everyone. When a great startup opportunity arises with an exciting product or service, word will travel quickly. If you have to wait for your investment funds to become liquid before you can cut an investment check, you may lose out on being the main investor to someone that was able to write a check that day. Go ahead and cash out some funds from your CDs, IRA, or other vehicles before you start looking for a startup to invest in.

Tip #2: Research the exit strategy

Before signing over the funds, check with the startup to find out what their exit strategy is. In most cases, the strategy should involve either an acquisition by a larger company or going public. This strategy is key because this is likely the point at which you will recoup your investment and then some. If they don't have a clear exit strategy, or at the very least a compelling profit strategy, keep your money in your pocket and keep looking at other startups.

Tip #3: Be ready to sell yourself

Startup investing isn't like other forms of investing. These are companies started by sharp entrepreneurs that know success depends on more than just getting the funding. They may be looking for an investor that has both the cash and the connections to lead to a successful venture. For example, if you are well connected in the real estate world or have extensive work experience in that field, you may want to look at startups that cater to that field. This way you can help the startup with initial networking and you may be able to help mentor the product development or advertising team. This is a win-win-win for you, the investor, and the startup.

Tip #4: Don't fear failure

Not all startups succeed, so never invest more than what you are willing to lose. One tactic is to spread your investments over several different startups; this way you increase your odds of choosing a successful startup. You can also pool resources with several different investors, or join an investment group, to make it easier to spread your risk. The key to using a spread out investment strategy is to keep your seed investments low. Then, as the startups develop you can really hone in on the ones that are showing early signs of success and provide them with additional funding.

Look into startup investments by Seed Equity or a similar company.