What is an angel investor?
Put simply, an angel investor is someone who invests capital in a start-up or entrepreneur, often through vehicles such as an LLC, a trust, or a strategic investment fund. Many investors also belong to angel groups or networks, which allow members to collaborate and pool their resources.
This investment can help a fledgling company get off the ground, or allow it to weather some of the difficulties that come with the early stages of business development. As Entrepreneur points out, angel investing is becoming more and more popular. Today, most major public companies owe their start to different angel investors and groups around the country, and shows like Shark Tank have brought the concept into the mainstream.
Are you interested in angel investing, but not entirely sure how one would begin to get their start as an angel? Or perhaps you’re considering whether or not angel investing is the right fit for your overall growth strategy? As you begin to look into the process of angel investing or consider how best to get involved, here are a few key factors to consider:
1.) Are You An “Accredited Investor”?
For many reasons, it helps if a potential angel investor meets accredited investor standards, as set by the Securities Exchange Commission (SEC). Broadly speaking, accredited investors must meet the following criteria
- Have an annual income of at least $200,000 a year (or $300,000, combined with a spouse)
- Have an individual net worth, or joint net worth with a spouse, exceeding $1,000,000 (not including a primary residence)
When looking for capital, most fundraisers prefer to seek out accredited investors, as this allows start-ups and other companies to avoid a lot of red tape with the SEC and other regulatory agencies.
2.) Understanding the Risks and Rewards
While angel investing can be highly risky, for the appropriate, qualified investor, it can also be very lucrative, even providing “a superior return – often better than other types of private equity,” as contributor Marianne Hudson has noted for Forbes. Even some of the most experienced angel investors will be able to share stories of both great successes, and notable setbacks.
As you consider getting started with angel investing, it’s important to remember that there are significant risks involved with the process, just as there is the potential for substantial reward.
Speaking or collaborating with seasoned angel investors, or consulting with a wealth management firm with experience in this area, may be a way to help mitigate the potential for risk, while maximizing your capacity for positive returns. A qualified wealth advisor can help you determine if angel investing is the right type of asset class for your financial goals, while also helping you consider how and why angel investing can fit in as one part of your overall portfolio.
3.) There’s Always Something New to Learn
With angel investing, the learning curve can be steep. And as many experienced angels will likely tell you, the education never truly stops. There is always much to learn, at every step of the journey.
For instance, when starting with angel investing, you’ll likely want to spend a lot of time learning about the process, either by consulting with an advisor, talking with experienced angels, joining an angel group, or consulting with educational articles, guidebooks, web posts, and resources (not unlike this one). Then there is the matter of your devising your initial investment strategy, which, as Hudson notes, may require thinking through “why you want to invest as an angel, what kinds of deals make your day, and how many investments you should make over time.”
Angels typically spend a substantial amount of time researching companies and industry trends, meeting with entrepreneurs, interacting with the companies they invest in, and taking part in networking and angel group meetings. It’s an active process, and performing due diligence, staying on top of trends and new developments, and keeping one step ahead of a shifting market and technological innovations can take an investment of time and attention. In some ways, this is one of the factors that can make angel investing so exciting and rewarding – for the right type of investor.
4.) You Don’t Have to Go It Alone
One of the most important things to understand when beginning with angel investing is that there are many options out there for support, guidance, and assistance. For those looking to start with angel investing for the first time, there are many clubs and networks, which offer mentorship, networking opportunities, and invaluable experience and insight, all to help set you down the right path while minimizing some of the potential risks.
Consider joining an organized angel group. There are many now in every state in America.
For Instance, FourStar Wealth Advisors Founder and CEO, Brian Kasal, was one of the first members of the largest angel group in the Midwest, the Hyde Park Angels (HPA). Brian was an original member for the first 10 years of its development and growth from 2007-2017. During that time, the HPA reviewed and vetted thousands of companies and invested in over 50 companies with seed round capital, with over $20,000,000 in early stage capital investments.
Have any questions? Brian and other members of the FourStar team are always happy to discuss the process of angel investing, and how others can get involved in angel investing as a part of their overall growth strategy.
About FourStar Wealth Advisors
FourStar Wealth Advisors is an independent Registered Investment Advisor firm headquartered in Chicago, founded on providing the most impactful and tailored wealth management solutions to clients. To do this, FourStar Wealth Advisors utilizes the latest technology and a broad range of investment solutions to ensure that each client has the proper tools and resources to put them in the best possible position to achieve their financial dreams.
We can help you define what is most important to you and then formulate the strategies that are suited for your needs, whether you are accumulating wealth or investing for income, solidifying your retirement plan, or devising a distribution approach that meets your lifestyle and legacy goals. Our idea here is to address the full life cycle of an investor and citizen to live a full and complete life, using our unique “Build. Live. Share.” approach.
Have any questions? Want to get in touch? Don’t hesitate to contact us today.
General Advertising Disclaimer
This article is provided by FourStar Wealth Advisors, LLC (“FourStar” or the “Firm”) for general informational purposes only. This information is not considered to be an offer to buy or sell any securities or other investments. Investing involves the risk of loss and investors should be prepared to bear potential losses. Investments should only be made after thorough review with your investment advisor, considering all factors including personal goals, needs and risk tolerance. FourStar is a SEC registered investment adviser that maintains a principal place of business in the State of Illinois. The Firm may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about FourStar’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov/