Everyone wants to become an Angel Investor. It’s an enticing idea; having enough capital to invest in people you believe in, helping launch early stage companies into the stratosphere, and going along for the ride on the next big thing (hopefully).

But don’t be fooled; Angel Investing is not as easy as it sounds. Like any investment, it can be an incredibly risky endeavor should you choose to pursue it.

In this article, we’ll cover the basics of Angel Investing, Justin’s learnings from almost a decade of investing, and how you can get started and spread those wings.

What is Angel Investing?

Angel Investors are individuals who fund early stage startups or entrepreneurs, typically in exchange for ownership equity in the company. Unlike institutional investors, Angels usually put in a much smaller amount, use their own capital, and are more focused on getting startups on their feet. But money is not the only resource that can be invested into a company. Expertise, consultation, networks, and time can all be considered in the totality of Angel Investing. These are often equally, if not more, important than funding.

Investment Lessons from Justin

Having invested in over 100 successful companies over the past 9 years (Cruise, Ginkgo, Bioworks, and Razorpay to name a few), Justin has a a few commandments of investing that you should probably keep in mind.

Invest in founders, not ideas.

Don’t be fooled - even the best ideas aren’t enough to carry a bad founder. This never works. It’s seductive to invest in pet ideas you want to see in the world. Execution is what matters at the end of the day. Remember, great founders can pivot bad ideas; bad founders can ruin great ideas.

Getting Access: Differentiate Yourself

Brand: Set up a unique platform, or position yourself as an expert in the market to differentiated deal flow. Leverage a combination of your connections and reputation. Your personal network is foundational to becoming an Angel Investor; it’s not just always about the money.

How do you build your network from zero? Check out last' week’s article on this topic.

Follow your mutual network, and get intros to founders outside your circle through your connections. Publicly showcase your your insights and expertise on Twitter or your own newsletter while building a reputation in the area you want to invest in. It’s all about access at the end of the day.

Analysis: Do you actually think about how the world will look in the future, and do you make good investment decisions based on that view? There are no magic bullets here. Do your due diligence on companies, contact customers, and familiarize yourself with the market. You’d be surprised how many investors gloss over this crucial step.

Hustle: Chances are, if you see a good investment potential, others will see it too. Angel Investing is a competitive process; you should think about how to justify yourself being put on the cap table. What can you offer? How much time have you spent with the company? Hustling is all about getting into deals. Don’t wait for founders to raise before stepping in. You should figure out what company you want to invest in early, and convince those founders to shut up and take your money.

The best angel investors take the initiative to just start being helpful to founders and build a good relationship with them. They will get allocation or even included in previous rounds.

How to start Angel Investing

Here’s a groovy life hack: DON’T angel invest any money you’re not willing to lose.

You’ll need:

Capital to invest

This goes without saying. Allocate an amount that you feel comfortable with investing, and be prepared to lose it if things don’t work out. Divide your allocated capital and then diversify your investments across several companies to build a portfolio. Unfortunately, you can’t know how good those investments are immediately; it may take years and years before you know. As long as you keep the above advice in mind and learn from your mistakes, you will be fine.

Mutual Funds Illustration illustration budget earnings wealth market stock profit investment income fund finance mutual — Artist: Deemak Daksina

To build strong relationships and networks with founders

The best thing you can do to get started is to get out there and be super, super helpful to companies. Spend time with founders and figure out: ‘what are the ways that I can help this founder succeed?’ That’s how you build your reputation. Warm intros are better than cold outreaches, but do whatever it takes to get in contact. The earlier you can establish these connections the better chance you’ll have of getting your foot in the door as a potential investor. Reputation doesn’t only have to be built through contact; use social media platforms like Twitter to build a following and share your insights to expand your network and influence.

How do I compete with existing investors?

If you’re just getting started as an Angel Investor, you actually have an advantage up your sleeve - time. Every established investor out there only has one hour for every hour and that is exactly the same for you. They are constantly inundated with requests to spend time with companies that they don't have time for; but you do. Spend that time with those companies, be as helpful as you can, work on differentiating your value and making it relevant, and expand your network.

That’s all! Make sure to share this with anyone who might find this helpful. Happy investing!

The Quest Digest

So You Want to Start Angel Investing