Angel Investors

I provide coaching to investors having US$ 3 million in assets

I work as a Managing Partner and invest US$500,000

with partners putting up US$ 2 million capital

Contact me by email pjlal@tradingjobschool.org

Coinvesting : Partnership structures ideal for angel investors who have links with Hong Kong

(courtesy: startups.com)

Angel investors are typically high net worth individuals who invest their own money. Maybe they sold their own startup. Maybe they made a lot of money in a business. Maybe it’s family money.

Angel investors are risk takers

Angel investors mostly purchase a stake in the technology startup and will expect a certain amount of involvement and say as the company moves forward.

Venture capitalists, the ones who coordinate investments by angel investors as well as other investors, tend to migrate toward certain industries or trends that are more likely to yield a big return. It’s common to see so much venture capital and angel investment activity around technology companies: They have the potential to be a huge win.

VCs know that for every 20 investments they make, only one will likely be a huge win. A win for a VC is either one of two outcomes – the company they invested in goes public or is sold for a large amount.

VCs need these big returns because the other 19 investments they make may be a total loss. The problem, of course, is that the VCs have no idea which of the 20 investments will be a home run, so they have to bet on companies that all have the potential to be the next Google.

Conversely, other types of industries may yield great businesses, but not giant returns. A landscaping business, for example, may be wildly successful and profitable, but it’s not likely to generate the massive return on investment that a VC needs to make it’s fund work.

The other reason VCs tend to invest in a few industries is because that’s where their domain expertise is the strongest.

It would be difficult for anyone to make a multi-million dollar decision on a restaurant if all they have ever known were microchips. When it comes to big dollar investing, VCs tend to go with what they know.

Angel investors

Angel investors tend to invest in companies that are in industries they know a lot about.

So, for example, if an angel investor made a lot of money in the real estate industry, you can imagine they would be most comfortable putting money back into that industry.

After all, they know the industry, including the right questions to ask, what kinds of opportunities exist — and who’s BS’ing them.

That’s not to say that it’s the only criteria for angel investors. They may have made their money in gold mining, but are looking to make investments in tech companies because they think that’s where the big upside opportunity is.

Process: Angel investors

Angel investors usually come on early in the life cycle of a startup. One of the reasons they’re called “angels” is the fact that they’re willing to put money into pre-valuation startups, which may have a hard time finding funding sources elsewhere.

So how do you value a company that doesn’t have any metrics yet?

One way is to really emphasize the team, rather than any numbers or metrics. Angel investors are particularly interested in investing in the founder, with less of a focus on current profit or sales, which are often non-existent for early stage startups.

However, that doesn’t mean angels are only investing in the founder. They’re also looking at more quantifiable terms, like the size of the market your startup is in, the product itself, how competitive the environment is, and — yes — whether the startup has any marketing or sales yet.

Angels are often one of the more accessible forms of early stage capital for an entrepreneur and as such are a critical part of the equity fundraising ecosystem.

Getting good angel investment deal structures is all about creating a win-win situation..

Process: Venture Capitalists

The goal of a venture capital investment is a very high return for the venture capital firm, usually in the form of an acquisition of the startup or an IPO.

A venture capital firm is usually run by a handful of partners who have raised a large sum of money from a group of limited partners (LPs) to invest on their behalf.

The LPs are typically large institutions, like a State Teachers Retirement System or a university who are using the services of the VC to help generate big returns on their money.

The partners have a window of 7 to 10 years with which to make investments, and more importantly, generate a big return. Creating a big return in such a short span of time means that VCs must invest in deals that have a giant outcome.

These big outcomes not only provide great returns to the fund, they also help cover the losses of the high number of failures that high risk investing attracts.

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