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Becoming an angel investor today is far easier than it has ever been before.

Let’s see how to be one.

Angel investing used to require writing checks of around $10,000 per deal, today you can start building a portfolio of startup investments for just $5000 per opportunity.

If you invest in two promising deals per month, in a year you could have 24 high potential startup investments. By investing in multiple deals, you’ll have a better chance of backing a highly successful startup as diversification is generally believed to reduce risk and increase chances of a return. And the experience you’ll gain will improve your angel investing skill set, and make you better at picking deals. 

If you’re ready to start investing, head on over to www.startuplanes.com  where we have dozens of deals. Each opportunity has detailed information on traction, team, the product, and more. There’s also a Book a call with CEO section where you can connect with the CEO for an in-depth discussion.

1. Decide If Angel Investing Is Right For You

Angels invest in the early stages of a startup – providing the first “outside” capital to the company. Prior to the angel funding phase, initial or “inside” capital is typically from the founder(s) and/or raised from “friends and family”.  Startups in this early “pre-seed” or “seed” stage have the biggest upside and highest risk.

2. Legal Rules, Regulations & Stuff…

Angel investing is regulated by federal and state agencies to protect the unsophisticated.  To  invest in companies where you have no personal relationship with the founder(s), the investor must meet the  “accredited investor” standard:

  • Have a net worth of $1 million or more – outside of their primary residence and Indian requirements are relaxed.
  • Have an income of $200,000+ (or $300,000+ as a couple) for the last two consecutive years
  • Are a general partner, director, or executive for the issuer of the securities funding the startup
  • There is no board or agency that certifies this standard. Investors and those raising capital are responsible to maintain the standards themselves.

3. Understand How Angel Investing Works

How does angel investing work? Here are the basics:

Angel investors choose startups to fund.

Angel investors typically come into the funding picture after the founder and their family and friends and acquaintances. Angel investors find “investable” startups through networking, angel groups, and other local or virtual methods. Once an angel finds an intriguing opportunity, they perform due diligence to determine a value for the company. The angel then comes to terms with the founders, documents them with preferred stock or a convertible note, then makes an investment.

Angel investors provide support and mentoring.

As the startup is building their product, their market, hiring key staff members, raising additional capital, and becoming a high-growth company, an angel investor will help the founder(s) with connections in their network, in making sound business decisions, and in avoiding the pitfalls of startup companies.

Angel investors cash in.

As the startup grows, it can become a candidate for acquisition or an initial public stock offering (IPO). This juncture, called a liquidity event, is where angel investors reap the rewards of their investment.

Angel investing has attracted many new participants in recent years. Investors are attracted to the potential of big payouts, mentoring opportunities, and the deep connection to the local community it offers.

 4. Learn How to Find and Evaluate a Pipeline of Potential Investments

Because angel investments are a high-risk class, investors expect high returns – well above the typical public stock market returns of 5-10%.  Angel investors look for startups that have a realistic potential return 10-50 times their investment in 7 years or less…. with the occasional out-sized return of 100, 500 or even 1000 times their investment.

The industry the startup plans to enter can provide a further sign about its chances of a good return. According to the “Halo Report”, the following industries attract the most angel investors: internet, healthcare, mobile and telecom, energy and utilities, electronics, and consumer products and services.

5. Learn How to Conduct Due Diligence

Before investing in any startup, thorough due diligence is advised.

The due diligence involves the investigation and evaluation of the startup and its founders before funding. It looks at the market size, use of funds, technology, intellectual property, founder experience and character, the risks involved in investing in a particular startup, plus much more. Angel investing groups conduct due diligence before they make any funding decisions.  This work is typically done by a subset of the angel group.

6. Decide what Angel Investing Method works for you

There are different types of angel investors. Below are summaries of the common types of angel investors:

Value-Oriented Investors – These investors bring extensive business experience to new startups.

Partner Investors – These types of investors invest in one startup at a time and seek to become heavily involved in its operations.

Barter Investors – These investors offer goods and services instead of finances.

Socially Responsible Investors – These angel investors look to support startups that address their social needs.

Regardless of what type of angel investor you consider yourself, there are two main investing methods they use.

The Benchmark Method

The Benchmark Method or Scorecard Method assesses the pre-revenue value of a startup based on the outcomes of similar businesses in the same industry or location. A benchmark is made based on the average value of similar companies and includes:

  • How strong the executive team is
  • The size of the business opportunity
  • The startup’s main product or technology
  • How competitive the business environment is
  • The amount and urgency of the need for capital

Each benchmark is then measured on a 0-100 scale.

The Berkus Method

With the Berkus Method, the value of a startup is assessed by certain value drivers. These drivers include:

  • The soundness of the startup’s business idea
  • The quality of the company’s prototype
  • The strength of the management team
  • The quality of the startup’s strategic market relationships
  • The profitability of existing product sales

At StartupLanes we provide everything an investor is looking for. An ecosystem of Startups with a huge Angel network and innumerable Startups. Connect with us today.

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