To become an angel investor you need to have enough money to invest in business ventures and have experience that could add value to the venture you invest in.
A typical angel investor in the USA invests between USD 5000 to 500,000 in growing businesses. In the UK the investment range is from UK Pounds 10,000 to 250,000.
Investment advisors generally recommend that angel investors put no more than five to ten percent of their total portfolio into these private equity investments. The most of their portfolio should remain in the investments of stocks, bonds and cash.
Skills & Experience
You should have business and management experience and contacts in your area of expertise. With your business experience you are more likely to be able to make a sensible judgement about whether the company seeking money is likely to succeed. You will also be able to contribute more to the management of the company. If your business experience is limited, the most sensible option would be to seek to invest alongside people who are experienced, in a syndicate.
Research suggests that on average an investor spends about 10 hours a week on the company’s affairs. It would obviously be helpful if your skills and experience are complementary to the existing skills set in the business. If your skills fill a gap in the venture’s skills set, you are less likely to be accused of “interfering” in the affairs of the company.
Precautions You Should Take Before Investing
If you have not made a business angel investment before, there are a few things to consider before investing in a company:
- Obtain experienced legal advice for assessing documentation, structuring the deal and drawing up agreements.
- Obtain experienced accountancy assistance for assessing the business plans, other due diligence and tax advice.
- Plan how you expect to achieve a return from your investment provided the investment is successful, i.e. dividends, fees, capital gain.
- Find out about the entrepreneur and management team’s background and track record. Establish whether the entrepreneur, fellow directors or any of the management team have been bankrupt or been a director of an insolvent company and the facts behind this.
- Consider investing together with an experienced business angel. Business angel networks may be able to put you in contact with an experienced angel who may be interested in investing in the same company you are considering.
- Be patient. It often much longer than many business angels anticipate to find the right company in which to invest.
By Venture Ahead