You may have dipped a toe into investment, but have you considered the next step as an angel investor?
Angel investors are solo investors who aim to build up a diversified portfolio of early-stage companies. Angels source deals from their contacts and networks, listen to pitches from entrepreneurs and conduct due diligence checks.
But why go the extra mile when you could put your cash in a ready-made portfolio of companies, managed by a star active manager who has generated above-market returns, or a passive fund portfolio that tracks an equity index?
Advantages of being an angel
There are many advantages to being an angel:
- Angel investing is an opportunity to discover new companies in different industries around the world, for example, on the cutting edge of healthcare, or AI, or climate tech. The world is much, much larger than the FTSE All-Share.
- Direct access to founders. “I just love to talk to founders and entrepreneurs and see their drive and motivation. I've been lucky enough to invest in some tremendous companies early on that I know I can continue to invest in and make a positive return,” says Quentin Nickmans, co-founder of Hexa.
- Direct impact. Angel investors often invest at very early stages, allowing small companies to grow before they raise funds via traditional routes like venture capital firms.
- Managing your own involvement. Some companies only require cash from angels. Others will ask you for help and feedback, depending on your expertise and availability. For example, members of the Mozza Angels syndicate are asked to dedicate 30 minutes of their time per quarter to speak to founders.
- Risk / reward ratio. Not every company you invest in will succeed, but potential returns can be very big indeed. Remember that all companies start off small.
Angel investing will also sharpen your people skills – the right people, as well as the idea, make the opportunity – as well as your numerical literacy and ability to analyse a deal.
However, you need to be prepared to lose money.
Angel investing is a learning curve, and even the best early stage investors lose money much more often than not. (The difference with lesser investors is that when they win, they win big.)
Ultimately, angel investing is a great way to network and carve out a professional path in the investment world.
It also provides a fascinating insight into the most exciting entrepreneurial minds. Who knows, the new Google or Facebook could have you behind it.