Welcome back, scholars. I, Shabazz Farrakhan was thinking of ideas while I was smoking cigars last night. I do it to bring out the creativity in I. My idea was to start a series called "Capital Enterprise" where I discuss and give off ways to build income because my 15 streams of income are now 25 streams. Today's topic is Angel Investing.
What is Angel Investing?
First, it is similar to Venture Capital. The major difference is VC appeals to start-up businesses, AI appeals to start-up assets. A. I. helps companies hit the stock market and increase. VC can get equity or give equity. AI must secure equity in that asset. You have more business leverage with VC but more business opportunity with AI. I'm willing to sell ownership for publicity because in business, all publicity is good publicity. No business has boomed without proper social networking and investing. Who can be an angel?
- Crowdfunders, accredited investors (people who have over $1M net worth via assets) like myself, entrepreneurs, franchisees and politicians.
An angel investor (also known as a private investor, seed investor or angel funder) is a high-net-worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company. Often, angel investors are found among an entrepreneur's family and friends. The funds that angel investors provide may be a one-time investment to help the business get off the ground or an ongoing injection to support and carry the company through its difficult early stages.
Most are married men who are married + you add the benefit. Marriage is an essential component of being a presidential man.
My portfolio features 185 assets of the S&P 500.
Ownership algorithm:
70% founders, 20% angel investors and 10% employee option.
Benefits:
Asset diversification: Angel investing allows you to diversify into a high-risk, high-reward asset class.
Professional variety: It’s very intellectually stimulating working with a variety of startups, as it gives you a variety from my day job and allows you to develop new skills.
Entrepreneurial community: By working with startups and founders you can tap into a whole ecosystem of support and camaraderie that isn’t usually available in the corporate world.
Networking opportunities: You can access a whole network of other founders, investors, partners, lawyers, and a huge tech community.
Monetizing your expertise: Your founders may ask for your help and advice (if you have relevant skills) and this could lead to more angel deals or potentially paid work.
Startup education: You gain an insight into the joy and pain of running a startup. In short, you’ll gain lessons and education that money can’t buy.
See the latest trends: Startups allow you to stay up to date on the latest trends and technologies. They give you a reason to research and learn about new markets and new businesses which keeps your mind active.
Huge potential returns. If you manage to hit a home run and back a winner, there is a huge financial upside. You could double down and then get a great exit.
You could lose a lot of money: Most of your investments will fail, and if that happens – your value in a company could become worthless overnight. That is why you should only invest a small portion of your wealth into angel investing.
Return periods can be very long: As we have mentioned before there is very little liquidity in angel investing so it can take many years before you actually get cash in the bank from your investment winners. This is a long game, not a get rich quick scheme.
It is a journey into the unknown: Your decision is more judgment than deep analysis and evidence. At the angel investment stage, the level of information and certainty you have is very low, so this is not for There is a 0.00067% chance that the business you invest in will go on to be worth $1 Billion. Couple that with the fact 90% of startups fail and investing does not look like a recipe for making money.
The biggest risk involved stems from the fact that if an investment fails, you lose all of your invested money, rather than just some of it.
Even those investments that do not outright fail could go into a zombie state (that being a company that requires continuous bailouts to operate.) These zombie investments never achieve real scale and therefore there is never an opportunity to make any money from them. that do not like the unknown.
To name a few promising examples – early investors in Google received over a 1000x return on their investment, while eBay’s early investors received a whopping 1500x return. These extreme examples illustrate the promise and potential of angel investing. Even a very small investment could yield big returns if your investment goes on to be very successful.
There are lots of caveats in this example, but it is possible to make a good return if you are lucky enough to find a winner.
Remember that you only receive your gains in cash when there is a liquidity event. Which is the name for an opportunity for shareholders to turn their shares and assets that are tied up, into cold, hard cash.
There are a variety of different types of liquidity events. The two main ones being:
Initial Public Offering (IPO): After an IPO, the company’s shares become available for the public to buy and trade. It’s here that the company’s founders and shareholders may sell their shares and monetise their initial investments.
Direct Acquisition: An alternative way to monetise investments is to sell the company or sell your stake in the company to an interested party, rather than going public. Examples might include: an acquisition or merger when a shareholder sells their stake of the company to another business.
Here are some of the way’s the two differ:
Timescales: Stock market investors could theoretically see a return within a few days, they could also increase or decrease their holdings in minutes. By comparison, in angel investing your capital is locked in for as long as 7-10 years.
Deal Flow: It is very easy to invest in the stock market. All you need is a brokerage account and you can start trading. With angel investing, a deal flow is much harder to source.
Research: There is a huge amount of information, analysis, and news on public companies who must report their finances regularly. For startups, there is almost no available information available about the company.
Influence: When you buy stock in a public company you have no influence and say over how the company is run and managed. However, with angel investments, there is plenty of scope to influence the strategy of the startup.
Returns: Stock market returns average 10-15% per year, due to their relatively low risk. Angel investing is a much higher risk so the returns can be much higher for the companies that end up being successful.
To some extent, angel and VC investors are very similar. They both make investments into early-stage, high potential companies hoping that a small number of successful companies will make the majority of their returns.
Angels tend to be individuals investing a portion of their net wealth in working with startups. VCs tend to be professional money managers who are investing money from a fund they raised from limited partners.
This means VCs have much higher amounts of capital to deploy, their funds can run into tens of millions, with some of the big funds being in the billions of dollars.
With large amounts of capital to deploy VCs favour larger-scale opportunities which typically means they are investing in later-stage companies to angels.
How to start:
Step 1: Self accredit your financial status
To be an angel investor you usually have to be accredited, which means you need to self-declare that you meet the guidelines in your country:
U.S. an ‘accredited investor’ is someone with $1M in assets or income >$200k
UK high net worth certification is an annual income of at least $100,000, or net assets of £250,000 or more
Step 2: Decide on your asset allocation for angel investing
A good guideline is not to put more than 10-15% of your net worth into this regardless of how good the deal flow is. An even better way is to spread this 10% out over five years, rather than investing it all in year 1.
Step 3: Mentally write off the money you have just allocated
Most people do not make money in angel investing so you’ll likely to lose most, if not all of the money you have just allocated.
Step 4: Learn about angel investing
Meet at least 5-10 experienced angel investors (many angel investors have limited experience of actually doing deals). Try and learn as much as you can from them and listen to their pearls of wisdom.
Step 5: Find some deal flow
The best way to do this is to join a syndicate. Find syndicates that you like the look of and piggyback off the “lead investor”. They will handle all of the terms, legality and paperwork for you.
Step 6: Make 5-10 investments in “winners”
Invest $5k in 5-10 companies to get experience and see how angel investing works. Making a number of investments are important as insiders will be reluctant to work with you until you have proven yourself.
Step 7: Generate your own deal flow
Once you have made your initial investments you can, if you like, start creating your own deal flow instead of going through a syndicate. The best founders already have an inner circle of angels so you’ll only see deals that others have passed on unless you create your own deal flow.
That’s all it takes to be an angel investor.