Got balls, got money, and madly in love with promising startups?
You’re destined to start your journey on angel investing!
Think about it. You invest your own money and report to no one but yourself.
Cut a check if you like; close the checkbook if you don’t.
You always have the final say ‘cos Golden Rule says “he who has the gold makes the rules.”
But with tons of other asset classes to choose from, what’s in it for you to angel invest?
Unlike other forms of investments (e.g. investing in a fund or in the public market), direct angel investments give you the discretion to positively influence the outcome of your portfolio companies. You can leverage your network and expertise to help the startups. Simple. Direct. Effective.
Mike Volker, a Vancouver-based veteran angel investor, told The Globe and Mail:
“With larger companies you’re removed from the action, and you’re getting second-hand information, reading analysts’ reports and opinion letters,” he says. “Working with startups I’m basically an insider, although you can’t trade on that.”
And it sure as hell beats the odds of hitting the jackpot!
Few years ago, the Ewing Marion Kauffman Foundation and the Angel Capital Education Foundation conducted the largest study on the financial returns of angel investors in North America and released a report in 2007, showing that angel investors participating in organized angel groups achieved an average 27% internal rate of return (IRR) on their angel investments.
Overall, this set of angel investors affiliated with angel groups experienced exits that generated 2.6 times their invested capital in 3.5 years from investment to exit. This return compares favorably to that of other private equity investments, including those of early-stage venture capital. Seven percent of exits generated returns above 10 times their initial investment.
But making money is just one aspect. There are much more to being an angel investor. Read on.
Angel investing is exciting. Its high risk/high reward nature charges up certain macho type. If you’re like most angel investors, chances are that you’re or were an entrepreneur yourself. In this case, you can re-live the startup adventure without doing the hard work, as Dharmesh Shah, founder of HubSpot, puts it.
In this regard, we couldn’t have said it better than Will Herman, TechStars mentor and Boston angel investor:
I invest because I have a blast doing it. It’s about 75% of the fun of running the company yourself with only 5% of the stress.
Or maybe, you’re truly enthusiastic about sharing your startup experience and/or giving back to the startup community.
Jason Calacanis, founder of Open Angel Forum, said:
When I was coming up as an entrepreneur I had to fight for everything I got and there was no clear roadmap of how to be successful. I’ve been more successful than I probably deserve, so I’ve been spending 10% of my time trying to give back to “the game.”
That’s why I started the TechCrunch50 conference with Mike [Arrington], that’s why I angel invest and it’s why I started This Week in Startups. I like to share what I, and others, have learned. I think entrepreneurship is a beautiful thing.
You bet entrepreneurship is a beautiful thing. It creates heaps of jobs and stimulates our beloved economy.
And you get good rep. It’s the side-effect of helping the community. Shan avouches, “One of the side benefits of being an angel investor is that it builds credibility and good will within the local community.”
Just because you’ve got some nice coins in your pocket doesn’t mean that you’re a Know-It-All, although some suck-ups might have you believe otherwise.
When you got skin in the game you’d suddenly pay much more attention to the invested domain. No matter how big an expert you already are in a given space, you’d pick up something new when your antennas are focusing on the beam.
“I learned as much from going into angel investing as I got out of my Sloan MBA,” Shan states.
What’s more? Not only will you meet passionate entrepreneurs but you’ll also connect with other investors who’ve also invested in the deal. Their expertise and networks are something you might be able to tap into in the near future.
Big things happen when great people get together. This kind of instant connections isn’t something you can develop at run-of-the-mill networking events.
Herman admits that meeting people is one of his motives to becoming an angel investor: “I get to meet smart, energetic people with great visions and boundless energy. ”
Shan also makes no bones about how being an angel investor has put him in touch with brilliant people who he wouldn’t have gotten to know otherwise: “Angel investing has been very helpful getting me into the right groups of people, and that has helped me in my third startup [HubSpot].”
Like many angel investors, Del.icio.us founder Joshua Schachter believes angel investing “pays vast dividends outside of dollars.” Schachter says that angel investing allows him to stay close to interesting projects and avoid getting bored. He adds, “I know about a lot of what’s going on in the Valley right now, for example.”
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