Angel Investing Guide for Beginners
Angel investing—investing personal capital in early-stage startups—can be rewarding but is inherently risky. This guide covers everything a new angel needs to know.
Is Angel Investing Right for You?
- Capital requirements: Minimum $25-50K total allocation; $5-10K per deal
- Time horizon: 7-10+ years to see returns
- Risk tolerance: Expect 50-70% of investments to return $0
- Accredited investor status: Required in the US ($200K income or $1M net worth ex-home)
- Value-add: Best angels contribute expertise, networks, and mentorship
Portfolio Strategy
- Diversify: Minimum 15-20 investments over 3-4 years
- Power law: 1-2 investments will drive all returns
- Follow-on reserves: Save 30-50% of allocation for follow-on investments in winners
- Allocation: Angel portfolio should be 5-10% of investable assets maximum
Evaluating Deals
- Team: Most important factor. Domain expertise, resilience, complementary skills.
- Market: Large TAM (>$1B) with secular tailwinds
- Traction: Any evidence of product-market fit (revenue, users, waitlists)
- Terms: Reasonable valuation, standard SAFE or convertible note
- Your edge: Can you add unique value? Best deals come from your domain
Where to Find Deals
- Angel groups (AngelList, local angel networks)
- Accelerator demo days (YC, Techstars)
- Syndicate platforms (AngelList, Republic)
- Personal network and founder referrals
Common Mistakes
- Not diversifying enough (<10 investments)
- Over-concentrating in one sector
- Investing at too-high valuations
- Not reserving capital for follow-ons
- Confusing a good product with a good investment
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