Angel investing diversification
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Would you choose to have only energy companies in your public company portfolio? So why should you limit your early stage investing to just one industry? There are a number of ways to categorize the types of entrepreneur. For instance, there are serial entrepreneurs who built many companies and first time entrepreneurs who are building their first company.
We have young and old entrepreneurs. We have male and female entrepreneurs. And, we have all different races and religions. In my portfolio, I have a wide range of entrepreneur type. However, they all have a few characteristics in common. And it is critically important to match the type of entrepreneur to the type of opportunity.
If you have access to interesting deals where a company is at a major growth inflection point, you should consider making an investment. Capital Requirements - How much money do you need? How do you calculate the financial requirements for building a diverse portfolio? Not counting the time dimension, which I discuss below, there are three key variables in the equation. The typical investment size varies quite a bit. However, there is one additional variable you need to factor in.
How much capital do you need to reserve for follow-on investments in your portfolio? The overall amount reserved depends on company stage, type of company and how well the company executes on their plan. If that number is beyond your appetite at this time, you should consider investing through an angel fund and let the fund help you build a diverse portfolio at a lower investment threshold.
Time - Patience is a virtue, especially for angel investors! Angel investing is more like a marathon than a sprint. More likely, the quick exits you have in your portfolio will be due to failure of the company. Angel investing is an avocation for the patient investor. You need to be ready for the fact that investing in VC is highly risky and you can quickly lose your investment.
On the other hand, you can help with your money, time, experience, and contacts, thus reducing the risk of failure of a given startup and you can participate in new technology development and the future. Does it feel like an exciting roller coaster ride?
For sure, it is. Read the most important things you need to know about angel investing. Wetzel did a study on how entrepreneurs raise capital and gave them this name from the characteristics of their content. Angel investors are really angels. They can save the company from corporate death. An angel investor is a private person who invests from the earliest stages of startups, especially in the pre-seed and seed stages. In addition to money, angel investors provide their experience, business knowledge in various industries, their time, and most importantly, their contacts.
These people are often entrepreneurs, former startups, or high-ranking managers. Who would refuse help from such experts? Why angel investors are important An angel investor is very important for startups because he provides more than money. Angels invest and help at the very beginning of the startup, where the startup would never receive investment from any VC fund. For VC, these phases are very risky, because they lack the time they could devote to startup, so they rely on companies that already show some sales.
On the contrary, an angel investor with his time, expertise, a tremendous amount of experience and business contacts helps startups to overcome a difficult beginning and significantly increases the chances of success, ie that his investment will be appreciated. Investing in startups is great adrenalin with high potential for profit, but also with a high probability of loss.
A potential investor should definitely be educated in the field of investing in startups to increase their chances of winning! Where to find angel investors There are not many active angel investors in Europe, but with angel investing constantly growing, the number of less experienced and smaller capital investors is increasing. Some have built a personal brand of an angel investor which is very demanding and is often associated with attending many startup events, lecturing, or participating in a successful exit.
These angel investors do not have a so-called shortage of deal flow, because startups contact them directly. If you are not this type of investor, then fortunately there is another way to enter the startup world and gain access to quality projects and other investors. These are various angel networks and clubs. They are often local and tied to a given country, but there are also international ones looking for startups from all over Europe, such as the DEPO Angels Network.
Much ink has been spilled and computer cycles burned on discussing and simulating the optimally-sized angel investment portfolio.
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