Dear ABBI,
I have a significant amount of savings that I’ve allocated to my portfolio, but I’ve been thinking about how I can diversify and create an even larger impact with my money.
I’ve been involved with a handful of early-stage startups, and I’ve seen firsthand how important a much-needed infusion of capital can be. And with so many purpose-driven companies out there, I feel like there’s never been a better time to get in on the ground floor of a startup that’s making the world a better place!
That being said, I don’t know much about investing outside of the very simple basics. I explained what I wanted to do to a friend in finance, and she said it sounds like I want to become an “angel investor.” I have a lot of questions, but let’s start with main ones: What exactly is angel investing? How does it work? And how do I know if it’s right for me?
Thanks,
Curious in Cali
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Dear Curious in Cali,
First off, I’m so excited you’re interested in kickstarting your angel investing journey!
As you’ve touched upon, angel investing is not only an opportunity to invest in high-growth companies at the earliest stage but also to support the founders and missions that are most aligned with yours.
To set some context, this is still very much a male-dominated space, as over 90 percent of venture capital and angel investors are male. Investment networks and education have primarily only served this largely homogeneous group, and as a result, 2 percent of funding went to women founders in 2017, according to TechCrunch, and only 0.2 percent to Black women founders from 2012 to 2014, according to digitalundivided’s Project Diane study.
But where there is an imbalance, there are opportunities! There has never been a better time for women to become angel investors. More and more diverse founders are building mission-driven companies, and as investors are recognizing that profit and purpose can coexist, the next wave of high-growth tech startups will inevitably be seeking diverse investors to join their cap table as well.
So what does it actually mean to be an angel investor?
As an angel investor, you invest your personal funds in a new or small business venture to provide capital for a company’s growth and expansion. This is also called seed investing. Angel investors invest because they know they could potentially receive a significantly higher rate of return, 2-10 times or more than they would receive from more traditional investments because you are investing in a company at its earliest stages. To put it into context, if you had invested $20,000 into Uber’s earliest funding round, it would now be worth over $200 million. That’s the exponential power of startup investing.
While there aren’t any hard and fast rules that all angel investors follow, investors always look for founders who show evidence of dedication, talent and resilience, and most importantly, whole-heartedly believe in the product or service the startup is intending to develop.
As an angel investor myself, I believe angel investing should be a part of every good investor’s portfolio. Angel investing provides an unlimited upside—the potential for exponential gains. It also provides the opportunity to make a significant impact on the types of companies, types of technologies and types of leaders who get funded. The startups today may very well be the Fortune 500 companies of tomorrow, and as an angel investor, you would be playing an integral role in shaping our future.
How do you know if angel investing is for you?
You should always start by understanding your own risk profile. Like any investment, angel investing is risky, there is always a risk you could lose everything, but if you invest nothing, you also make nothing, and one thing I always reiterate is that you need to make your money work for you! Your money should always be making you more money.
With that in mind, when you are first starting out, think of angel investing as an educational opportunity. The great thing about it is you get to learn and grow with the company. As an angel, you get a front-row seat to learn about the different innovations and technologies that you are interested in. For example, I invested in a femtech company and a woman’s CBD company recently because I am extremely passionate about understanding the evolving women’s health care industry. I also invested in a blockchain infrastructure project because I want to start learning more about the blockchain space.
I know it can feel intimidating, especially if you are new to angel investing, but that’s why I’m here! The most important thing is to realize you don’t have to be an expert to start investing. Ask yourself, “what kinds of companies/industries am I most interested in?” Then, follow your curiosity as you start to develop your investing strategy.
Good luck, and I can’t wait to hear about your angel investments!
Lisa Carmen Wang
aka ABBI (Ask a Bad Bitch Investor)
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