If you are looking for an investment alternative to a typical mutual fund and other investments in the stock market, you may find angel investing to be a wonderful solution. Angel investors fund startups and entrepreneurs.
This can be a very exciting way to invest that can also be highly lucrative if you invest wisely. Here’s what you need to know about how to make money with angel investing.
What is Angel Investing?
Angel investors are usually an individual or sometimes a very small group of people who make a substantial investment into a startup, often giving it the boost that it needs to succeed. Most of the time an angel investment is made right at the beginning of a startup, before it starts raising venture capital.
Angel investors often have a connection to the company either because they are directly responsible for it or because they trust somebody who is. However, angel investors can also come forward for companies that they are interested in without any kind of personal connection.
Who are Angel Investors?
Most of the time, Angel Investors are individuals with very high net worth. Attorneys, physicians, and business executives looking to expand their investment options are drawn to this kind of investment. Angel investors are often people who want to make a positive difference in the world by investing into companies that they believe in.
Angel investors often choose to invest in industries that they are interested in because of their business ventures or that they are drawn to because of their hobbies. In the past, the only angel investors were accredited investors that had more than $200,000 income annually or $1000000 in assets that they could invest. Now, crowdfunding platforms make it possible for non-accredited investors to be angel investors.
What Makes Angel Investing Different?
Most of the time when start ups need money, they borrow it in the form of a loan that they will at some point need to repay. Angel investing does not create a debt, and they don’t ask for the money to be repaid to them.
Rather, angel investors take an ownership share in the company. This benefits the company because they don’t need to worry about paying back the loan, and it benefits the angel investor because they have an unlimited potential for income along with the potential for growth of the company.
Furthermore, angel investing gives you the opportunity to be much more involved in the company than is true for typical investors or lenders. Angel investors often serve on the boards of the companies that they invest in. They may guide the entrepreneur in many of the important decisions and help to steer the company towards success.
The personal investment is one of the most potent rewards of angel investing. Many angel investors feel much more like hobbyist who are passionate about what they are doing than investors just trying to generate income.
Risks of Angel Funding
For startups, the only downside of angel funding is losing a share of ownership in your company. Most startups are thrilled to take the help of an angel investor in exchange for some of their stocks. However, for investors, there are some risks along with the potential rewards.
Angel investments are some of the highest risk on the market. If you are very confident about the company you are investing in, can steer company decisions in a way that you are confident will generate success, and have experience in the area in which you’re investing, investments may not be as risky for you.
However, even the best-laid plans may well resolve in a failed company and lost investment. Angel investors generally have to be able to absorb the loss of their investment if the company fails.
Unknown Payoff Dates
You won’t know when you will begin making money from an angel investment. Companies may take off very quickly and begin earning for you in no time, or it may take many years for your stock in a company to be valuable enough to sell. For the most part, angel investors have to see their money as being gone until they begin making income from it. There is little opportunity to take it back out or recoup your losses until the company has succeeded.
Angel Investing offers Unlimited Potential for Earning
Angel Investments might do better than real estate, stocks, and most other types of investment. If the company does well, your investment will grow along with it, which means if there’s almost no limit to the amount of money that you could make from the right angel investments.
If you are confident that you can pick a company that will thrive in a given market, you may be able to make a tremendously lucrative investment. However, always keep in mind the kinds of risk that this sort of investment entails.