Is there a way to be successful as an investor in startup companies? We believe there is, but it requires a bit of hard work, enough investments to be well-diversified and some patience. We also think that it is most effectively done as part of a group.
Investing in startup companies (also known as “angel investing”) involves investing in early stage companies that have not yet reached the stage where traditional venture capitalists are attracted to the company.
Typically these early-stage companies may have a prototype or a few customers, but do not have enough sales for a venture capitalist to make an investment. It may be a couple of bright women or men who have a solution to a real problem that lots of people or businesses have. They believe lots of people will pay money for their solution and they have found a way to provide the solution at a profit.
As an angel investor you are making a high-risk investment into a company that is at a precarious point in their development. The company could either sky-rocket or crash and burn. How do you know for sure which way it will go? There are some things you can do in angel investing that historically have improved the performance of angel investments. Here are some things that angel investors have learned along the way.