Angel Investing: So, what does it take to become an Angel Investor?
#WTF_Basics
For me, Angel Investing was, for quite some time, one of those terms I’d hear occasionally in conversations, and I’d just nod my head in agreement, hoping that no one would ask for my opinion on the matter.
Lately, though, I’ve started hearing the term more and more often, especially at events we host at Snappi Hub. So, when I heard a young woman introduce herself to the participants at a hackathon as an Angel Investor, I decided to ask her what exactly that means.
And as soon as she explained it to me, everything started to make sense.
So today I wanted to share with you what it means to be an Angel Investor, what you can actually offer a startup beyond just money, and, ultimately, how close you might already be to this world without even realizing it.
So let’s start with the basics.
An Angel Investor is an individual who invests their own money in a new company or startup, usually at an early stage, in exchange for an equity stake in the company.
So far, so good.
But come on, Marios, is money really the only thing that matters?
Not exactly.
Value isn’t just about money
Have you heard the saying time is money? or your network is your net worth?
In the world of startups, these two take on special significance.
Many angel investors are people with significant experience in their field. So, along with the capital they invest, they can offer something equally valuable: knowledge, experience, mentoring, and connections.
Consider, for example, a founder who is trying for the first time to break into an industry in which you’ve been working for 15 years. Something that might take him months of trial and error may be knowledge you’ve acquired through years of experience.
There are several interesting examples of people who didn’t start their careers as investors. Jason Calacanis, for example, started out in media, covering New York’s then-burgeoning tech scene, before moving into entrepreneurship and later into startup investing. One of his best-known early investments was $25,000 in Uber.
And perhaps that is the most interesting aspect of his story. Before becoming an investor, he had already spent years immersed in the ecosystem he would later invest in. His knowledge and network didn’t just appear the moment he wrote his first check. They had begun to take shape much earlier.
And then you have connections.
If, throughout your professional career, you’ve built a strong network of collaborators and peers, a meaningful connection can give a new founder the opportunity to present their idea to the right person.
Here, however, there’s an important distinction.
Angel investing involves an investment of capital. When someone contributes time, labor, or expertise in exchange for an equity stake in a company, we usually refer to this as sweat equity. Sweat equity can be provided in the form of labor, expertise, and time instead of a monetary investment.
The two worlds, of course, can overlap. An angel investor can offer mentoring, industry connections, and business expertise in addition to their money.
And that was something I personally hadn’t realized.
Angel Investing and Investment Risk
I’m no expert in finance, and this article is certainly not investment advice.
One thing, however, is worth keeping in mind: when you invest in a startup at a very early stage, you’re taking on significant risk. There’s no guarantee that the company will succeed or that your investment will yield a positive return.
That’s why, when we talk about angel investing, it’s important to also discuss diversification and risk management, rather than present investing in startups as an easy path to returns.
What I mean is this: for many angels, Angel Investing isn’t their primary professional activity. It’s a way for them to participate in the startup ecosystem while accepting the risk that comes with such an investment.
But there’s also something else that I personally find perhaps even more interesting than the purely investment aspect.
You have a Front Row Seat
One of the things I find most exciting about the startup ecosystem is that you come into contact with ideas long before they become products that we all use.
At a hackathon or a networking event, you might hear ten ideas that ultimately go nowhere.
The eleventh, however, might make you see a problem in a completely different light.
Innovators are trying to find new ways to solve real-world problems. And when you’re around these people, you begin to see firsthand what’s on their minds, what technologies they’re exploring, and, most importantly, which problems they believe are worth solving.
Perhaps this is one of the most interesting aspects of Angel Investing for me.
You’re not just betting on companies. You get closer to the people and ideas that are trying to build the future.
What if I don’t have money to invest?
Perhaps, in the end, that was my biggest misconception.
I used to believe that to enter the world of startups from an investor’s perspective, you first had to have a large amount of capital.
To become an angel investor, you do indeed need to invest capital. But to start providing value to startups, that’s not necessarily the case.
No matter how old you are, there’s probably something you’ve invested many hours of your life in to learn more about.
It could be your job. It could be a hobby. Maybe you know the retail industry inside and out. Maybe you’re very familiar with tourism. Technology. Marketing. Or even a specific niche or a small market that most people are unaware of.
This is your niche.
And once you find your niche, you can start looking for people who are trying to build something within it.
Not necessarily to give them money.
At first, it might be just to share an experience. To make an introduction. To become a mentor or advisor. In other cases, contributing labor or expertise can be agreed upon in exchange for equity – what we described earlier as sweat equity.
And perhaps, at some point, you’ll decide you want to take the next step as an angel investor.
I still haven’t decided if, and how, I’ll get involved.
Maybe all it takes is a spark.
Now that you understand a little better what Angel Investing is, would you give it a try?
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