One of the first questions I’ve been asked by those interested in venturing into the world of angel investment: how much money do I really need?
I hope what I share gives you the insight I wish I knew before starting! It’s not a simple or straightforward figure, I’ll be sharing principles for you to assess in the context of your situation. Nb. This isn’t financial or legal advice and I’d highly recommend you seek relevant advice on this front!
DO YOU UNDERSTAND THE RISK INVOLVED?
My view on angel investing is that you’re one of the first / early cheques into a company, in exchange for ownership / equity. Investment typically at this stage is at a formative time of a company where there is likely to be limited data available. Eg. There may not be product/market fit and/or they may not be generating revenue yet.
The number of startups that end up going to zero vastly outweighs the number that ‘exit’. Eg. An exit can occur via acquisition (being bought by another company), IPO (listing as a public company), secondaries (your shares are bought by another investor).
Then there’s the combination of the early stage nature of the investment and the time horizon — it could be up to a decade for any potential return. Eg. It is a highly illiquid asset class
Since there’s a high probability of each investment having a negligble return this needs to tested against how this sits with your personal circumstances.
Do you understand your own story when it comes to money?
- How do you relate to money based on your upbringing?
- Is owning a home more important?
- Have you assessed and explored the landscape of different investment assets?
- What stage of your life are you at and any impending commitments to meet?
Ultimately you need to understand the landscape of your risk appetite
You’ll be accountable for all of the investment decisions you make, whether you are making direct investments into companies or via syndicates. Whilst it’s great to see success stories if you view this path as a ‘get rich quick’ scheme then a reframe…