How to Become an Angel Investor

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Angel investor
Angel investor

An angel investor is an investor who provides capital to business start-ups in exchange for debt, equity in the business or both. This type of investment can be very lucrative, but it is also very risky. These steps offer advice on becoming a successful angel investor.

Become qualified as an angel investor. Most angel investors have to be accredited investors, which is defined as having a net worth of over a million dollars or income of $200,000 or more in 2 of the last 3 years. The money you plan to invest must not be too much of your net worth, generally 5 to 10 percent of your portfolio.

Have the required experience to invest as an angel investor. You should have sufficient experience in business and investing to do the required due diligence. Having management experience in the same industry as the start-up is also useful.

Obtain legal counsel. An angel investment involves a lot of legal documents and disclosures that must be reviewed. Having a lawyer to offer advice is critical in making a good decision.

Use an accountant to assist in due diligence. An accountant can help go over all the financial statements and projections that are needed to review the business when you are considering an angel investment.

Understand the business plan and the exit strategy of the business. Also understand the risks of your investments.

Tips & Warnings

  • To find possible angel investments, join a local angel group. Many specialize by industry. Also talk to venture capitalists and venture capital groups.
  • An angel investment can be very risky. Your investment could be tied up for years, and you may lose your investment. Limit your investments into any one start-up.

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