Fundamentals of Angel Investing

Fundamentals of Angel Investing

Though angel investing is a viable way to build a fortune, this is no investment decision to approach lightly. Still, there are plenty of great startup investment opportunities available today for conscientious investors.

The Impressive History of Angel Investment

Recent history provides plenty of examples of angel investors who saw incredible returns on modest investments. A fair number of angel investors have become famous, prominent business figures. Google provides the perfect example of an angel investor success story. Even in its earliest days, Google was recognized as a technological innovator. Over the course of 1999, Google gathered $25 million in angel investment. The value of that initial investment grew to $500 million by the time of Google’s 2004 IPO. Naturally, not every startup achieves success to compare with Google’s. Still, angel investing remains a deeply profitable venture for many.

What Sets Angel Investment Apart

Though important, profits aren’t the only rewards inspiring angel investors. There are plenty of other types of gains to be had. Angel investors (AIVs) often invest to support the causes near and dear to them. For example, you might invest in supporting professional women and minority-owned businesses. Quite a few startups combine profit-seeking with social consciousness. AIVs often enjoy unique relationships with the companies they support. After all, many startups look to AIVs for mentorship and tips for success. When you buy public stock, you are wholly relying on others to justify your investment. As an AIV, you can potentially play a role in helping your investment achieve profitability.

Less Tangible Benefits

When you become an AIV, you can enjoy the knowledge that you are helping create American jobs. Speculative investment is part of what makes the tech sector so resilient. This is one route you can take to pursue personal financial gain while benefiting your society. Believe it or not, there are social and intellectual benefits to angel investment. Arguably, entrepreneurs are among the smartest, most insightful members of society. AIVs are able to connect with some of the most interesting thinkers alive today.

Diversification

Angel investment is also a fantastic way to diversify your portfolio. AIV can partly protect you from dips and rises in the stock market. Because startups don’t trade public shares on stock exchanges, they can be somewhat insulated from random stock fluctuations. Most investment advisors contend that diversification is one of the keys to creating a resilient fortune.

Appraising the Risks of Angel Investment

Of course, AIVs face plenty of unique risks. According to Money Morning, “But when researching angel investment opportunities, choosing the best startup companies to invest in may be tricky due to the risk involved. After all, research shows that about nine out of ten startups fizzle prior to achieving successful gains.”

For one thing, successful AIVs must be able to think in the long term. Many promising startups take years to become profitable. Startups have to overcome many barriers to achieve greatness. Even when a startup has a great product, it may have to work hard to achieve a place in the public consciousness. Because startups engage in creative disruption, these companies often face regulatory and legal issues.

Uber provides a telling example of this. New business models like Uber’s do not fit easily in the established economic framework. Startups like Uber may engage in practices that are ethical but extralegal. While these practices aren’t explicitly illegal, they aren’t addressed in existing laws. Until such discrepancies are resolved, Uber can’t definitively achieve profitability. Uber is addressing regulatory uncertainty head-on. T

o whit, Uber spent $2.3 on lobbying during 2019 alone. Not every startup has sufficient funds to tackle their regulatory problems so effectively. Before investing in any startup, be sure to conduct research into the startup’s leadership.

If you’ve never invested in a startup, you could be selling yourself short. As you conduct adequate research, you should be able to invest profitably.

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