The most important things you should know about angel investing
Angel investing is undoubtedly one of the interesting ways to invest but it's not for everyone. To become an angel investor, first, you must have a correctly set "mindset". 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.
Angel investment / Angel investor
The term "Business Angel" was first used in 1978 by William Wetzel of the University of New Hampshire, founder of the Center for Risk Research. 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. For example, 70% of early-stage investments in Silicon Valley come from angel investors.
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! says angel investor Petr Rozhoň.
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.
The essence of these networks is to make it easier for investors and to help them with pre-selected quality startups that are worth investing or mentoring. This also reduces the risk of bad investment. In addition, networks should build credibility and bring together only investors that are non-toxic.
Angel investment is not just about making money, but also about having fun and spending time with people who are smart and inspiring. Be careful, because when you taste the initial atmosphere, you will never look back - Petr Šíma
Ways of investing
Direct angel investing
One of the main forms of investing is direct angel investing in a startup. But this method is risky. Remember that a lot of startups fail, so you can lose everything quickly. The amount that an angel can invest has no ceiling, but as mentioned earlier, this investment carries a lot of risks, and therefore it is necessary to diversify your venture capital appropriately.
DEPO Angels network is an independent community of angel investors, where you can go through pre-selected quality projects and in case you would like to invest, we can help you simplify the investment process.
The syndicate allows more investors to come together and provide startup financing under one entity. This allows investors to invest smaller amounts, so they can create more diversified portfolio (this is important in any type of investment). Syndications are also a great starting point for new investors, as they give you access to great projects, you can build your network and, as a result of that, you can accelerate your angel investment career.
Angel fond is perfect for those who are starting and is also suitable for experienced investors who want to diversify their portfolio with low capital amounts compared to direct investment. But beware, in any company, there is a relatively high risk that the company will go down the hill no matter how good it looks. That's why it's better to leave the choice of startups to a professional, especially if you don't know how it works. However, there are also funds with a committed approach, such as the DEPO Angel Fund, which allows investors to participate in the and help startups, which in turn increases the chances of success.
Because of diversification, you can invest in 10 different startups through the fund, which would be highly capital-intensive in the case of direct investment.
The options above can be combined. You can invest in the fund, learn, gain access to a community of interesting people and, at the same time you can invest directly in projects that you personally like or use a syndicate.
Angel investments are known to be highly risky. However, there are steps you can take to mitigate the risk. One of the keyways to achieve this is market research. If you want to get involved in angel investing, you should search the internet and look for topics such as valuation, investment terminology, product market fit, business model, founder’s history, due diligence, etc.
DEPO Ventures can also help you. We are here for you.