Angel investors are individuals who personally fund startups. Since they usually write smaller checks, you’ll find angel investors mostly in the early stages, like seed or pre-seed rounds, where the startups don’t need a ton of cash.
Early-stage investments are characterized by significant uncertainty, illiquidity, and opacity. This stage often presents a considerable information asymmetry, favoring the founder due to the limited available data for investment assessment. This raises a question: why would anyone risk their money in these early-stage ventures when they could put it in something safer like real estate or stocks?
It is the potential for huge returns. Angel investors dream of hitting that “home run” investment that justifies all the risk. You hear those amazing stories from Silicon Valley about a single investment making an angel investor financially free. But honestly, venture investing typically follows a power law distribution, which means only a few top investors really make big money, mostly because they have proprietary deal access. And geographically, These investors are concentrated in Silicon Valley, which is like a magnet for the best startups because of all the talent and capital there, fostering a thriving environment for entrepreneurial success and eventual exits. Since angel investing is so risky, you definitely don’t want to put all your eggs in one basket. And considering it’s tough to get your money out quickly and you need to build a diverse portfolio, it’s no surprise that most angel investors are high-net-worth individuals. It might seem like angel investing is just for a small group of rich folks.
But it’s not! Angel investing can be for anyone, as long as you learn how to mitigate risk and think long-term. For me, angel investing is just fascinating. I get to build genuine relationships with founders and work with them on problems I deeply care about. Sometimes, it feels like I’m paying the founders just to be able to help them out! And I hope someday those payments might surprisingly pay off financially.
That’s why when I look at an angel investment, my philosophy is pretty simple:
- I get to know the founder as a person first and only invest in people I’d actually want to work with (or even for!)
- They gotta trust me enough to let me help
- I stick to what I know (software, in my case)
- The idea has to get me excited too
But you can’t buy trust, you earn it. I really enjoy brainstorming with founders when they’re facing a tough decision, and I’m the first person they call. For me, that experience itself is way more valuable than the money I put in.
With all that in mind, I don’t just see angel investing as another way to make money. It’s more like a long-term hobby for me. It’s something that makes my life richer, gives me a bunch of stories to tell my son and my grandson, and something I can look back on when I’m old.
Because you’re investing in someone you’ve built a real, trusting relationship with, and in an idea you’re familiar with, you really cut down on that information gap and reduce the risk. And because you see angel investing as a long-term thing – like a 10-year, 20-year, or even a lifelong hobby – you have the time and resources to slowly build a strong personal network and learn how to angel invest, which eventually leads to a solid portfolio. At the end of the day, angel investing might not make you a billionaire, but with the right approach, a long-term commitment, and a trusted network, it can be less risky and give you so much more than just money in your life.
Oh, and about Angel Co-op…It is a venture capital fund structure designed to facilitate collaboration among like-minded and committed angel investors. So, go ahead and form an Angel Co-op fund to invest with your buddies!