This notion summarizes the key take-aways about everything I've read on Angel Investing. It includes small snippets of knowledge from over 30 sources including advice from some of the most successful investors like Jason Calacanis, Naval Ravikant and David S. Rose.
It should give you a first overview on:
- what angel Investing is,
- why people invest as angels,
- and how they do it.
Use the Menu on the right, to get your questions answered quickly or just explore by scrolling through the feed. Enjoy!
What is angel investing?
In short: Angels are private persons that invest their own money in start-ups. In return, they receive equity - a share of the company - they invest in.
The motivation for start-ups: Start-ups are very young companies that ususally doesn't have a fully developed product and therefore often no revenues. As a result, they need
- money to survive
- advice to make the right decision to grow.
The motivation for angels: Angels want to contribute to and participate in the growth of the company to make a profit by selling their shares at a later point in time. They contribute with
- money to support the company financially
- their experience - usually from own founding experience - to add value to the start-up and improve their investment.
"In Angel Investing the key question you should ask yourself is: How much are you willing to lose?" - Marianna Hudson, Forbes
Why would I risk my money as an angel?
The truth is that investing in start-ups is risky. One of the biggest risks is the
There are 3 main reasons why angel investing is still interesting.
Angel investing can be:
... learning and "aha" moments where you realize "that you know what you didn't know before " - Marianna Hudson
... the investments that have the potential to change our world. Jason Calacanis has an interesting hypothesis which states that ...
I picked a few start-ups that could contribute to making our world a much better place. For example:
- Udemy helps to democratize education through their online platform
- Volocopter is working on changing short-distance travel forever with their electric air cabs
Returns from young start-ups ("early-stage returns") are extremely skewed. Private angel investors as well as professional venture capital funds try to invest in as many good start-ups as possible to increase the probability of hitting an outlier that has the potential to return +50.0x.
"You only have to be right once" - Mark Cuban
Winners such as Uber can even return up to 5,000x. As a result, you could have 99 investments that failed completely and you would "only" need to a home-run like UBER to have an overall cash-on-cash portfolio return of 5x, which is very strong.
„In the short run the market is a voting machine but in the long run it is a weighing machine.“ - Benjamin Graham
What do I need to be an angel?
- Enough money is necessary to achieve a minimum of 25 investments to diversify your risk
- David S. Rose suggests
- $25,000 initial investment
- $40,000 over the life of the deal
- Dealflow means not only seeing investment opportunies but also having access to the investment opportunities
- Naval Ravikant emphasizes that access is the ability to get into a deal that you want to get into to the terms you want to get into
- Good judgement is crucial because money and dealflow doesn't matter if you cannot pick the right start-ups