Thinking About Online Angel Investing?
Before you do...check out our top 10 tips.
Technology has opened up investing in start up, early stage, and established businesses to a wider audience of aspiring angel investors. It’s no longer reserved for high net-worth individuals.
Once you’ve indicated that you understand the risks associated with equity investing, you can become an online angel and start investing. So what do you need to do?
1. Learn as much as possible about this exciting asset class before investing.
There are some great resources available - including downloadable ebooks etc. Read them to make sure you are suitably experienced and qualified.
2. Understand the risk / reward profile
Investing money in unlisted companies (particularly start ups and early stage businesses) can be very rewarding, however it also involves a number of risks.
3. Find out how to invest
There are two ways to invest: directly, where you buy shares in the company, usually A or B shares depending on your level of investment, or indirectly via a nominee structure.
Make sure you understand the nuances of each. Check out how you are protected as an investor with regards to voting rights, pre-emption rights, drag and tag clauses.
4. Use the tax benefits
Two of the Government’s best-kept secrets: the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). Taking personal circumstances into account, you could receive up to 64% tax relief on investments made into SEIS-compliant businesses. For more information, download our free eBooks.
5. Make sure you know how to identify decent investment opportunities
The 4 Ms of investing are a great starting point...consider the following:
- Management (entrepreneurial, visionary, technical capabilities, sales and marketing, ability to execute),
- Model (innovative disruptive breakthrough)
- Market (size, top down/bottom up analysis, competitors)
- Money (cash flows, profit and revenue potential).
6. Understand your motivations
You have to know what your motivations are for choosing to invest, and if they are the right ones. If making money is your main (or only) priority, you have to be aware of the likelihood that of the businesses you invest in, a lot more will fail than succeed.
It might be about more than the money; perhaps you want to give something back and act as a mentor to a start up team. Make sure that you are passing on sound advice to those who will use it properly and benefit.
7. Build a diverse investment portfolio
Spread your risk. Investing in unlisted companies is a high risk / high reward investment strategy. Some of your investments will fly, some will do “ok”, and many will fail.
Understand the risks and build a diversified portfolio of at least 10 investments. Choose businesses from a range of sectors at various stages of growth.
8. Do your homework
Most equity crowdfunding platforms have built-in private forums where investors can engage with entrepreneurs prior to making an investment.
The forums are a brilliant way to carry out due diligence. Crowd-sourced due diligence: lots of potential investors asking lots of different questions.
Connect with the entrepreneurs on social media channels too. Arrange a Skype call or, if you are planning to invest a larger amount, then perhaps it does need a face-to-face meeting
The GrowthFunders platform offers investors the chance to carry out their own due diligence via a forum, where they can interact directly with the entrepreneurs.
Having other investors requesting further details they feel they need, and access to other potential investors who are conducting due diligence of their own.
9. Consider investing alongside more experienced business angels
If you are relatively new to angel investing then it may be worth investing alongside more experienced angel investors and angel networks.
Syndication is a great way to spread risk and preserve some of your investment capital for follow-on rounds.
10. Exit Plan
Ensure the business you are looking to invest in has a clear exit strategy. It can take between 3 and 10 years for successful businesses to achieve an exit.
Look for investment opportunities that may offer you the potential to exit at different stages of the journey. If you can exit early, your multiple may be less, but a quicker return is sometimes better.
Now you've read the blog, why don't you download our free eBook on how to make money from online angel investing?