Here’s the thing: investing is complicated. Finding the right ways and avenues to invest your money in is far easier said than done, and can be affected by a number of external uncontrollable factors like timing, market conditions, and more.
Decades ago, the idea of angel investing was a more simple one; if you had excess capital or cash you wanted to invest, you would generally take your cash (or a check) to a designated investor or certified financial advisor who could help guide you through the process of investing that capital. Today, however, the entire investment process — like most other industry processes — has become nearly unilaterally digitized. But with this new evolutionary state of the investing industry has likewise come new tools, skills, and techniques many angel investors may not be as familiar with.
Thankfully, the experts at Real Life Trading have made it their mission to not only demystify many aspects of how, when, and where to invest, but have been able to help investors grow their brokerage accounts almost entirely autonomously. In this way, Real Life Trading’s team of experienced investors and other professionals not only encourages others to begin their own angel investment journey, but become more familiar with the different means and methods of investing, building healthy portfolios, and creating wealth that can be re-invested in the future.
Before you get started in angel investing, learn as much as possible about it
“One of the first things I always tell new or prospective investors to do before investing any capital is to carefully read through the book ‘Angel’ by Jason Calacanis,” said Real Life Trading’s Chief Technology Officer, Matt DeLong. “Calacanis’s book takes readers through his own journey of how he managed to turn $100,000 into $100+ million over the course of some 25 years by investing in technology start-ups. It is my #1 recommendation for anyone looking to become an angel investor and learn more about investing from one of the nation’s top angel investors—all summarized in 32 chapters.”
Along with Calacani’s book, DeLong stresses the importance of reading and learning as much as possible about investing before taking the leap to start becoming an investor. This entails not only learning about the state of the investment industry itself, as it stands today, but also about each market one might be interested in investing in. One of the best ways to begin this is to start in a particular industry or market a prospective angel investor is already familiar with.
“Focus on defining a specific industry you already have some expertise and knowledge about,” DeLong continued, “such as healthcare, fintech, education, or others. If you choose to simply invest in something that you believe (or are told) ‘has potential,’ it will become nearly impossible to predict the potential success of your investments.”
Ask where and how you can add value to your investments
For owners or founders of startups, landing an investment of any size can generally be chalked up to a “win” for them and/or their company. For the investors who sign those checks, however, simply signing a check to invest in a company is where their value begins—not where it ends.
“Being able to add value to the startups or companies you invest in is what sets aside ‘dumb money’ from value-add investors,” DeLong explained. “Before signing that check, you need to ask yourself questions about how you can continue to add value to those investments in order to maximize your future ROI.”
According to DeLong, some examples of these questions might include:
- Can I introduce this company or its core leadership team to other investors or investor networks?
- Can I help this investment make valuable and profitable connections and partnerships?
- Can I recommend potential key executives or leaders who can help carry this company towards periods of future growth at scale?
- Can I assist this company’s founders or leaderships teams through difficult-but-crucial decision-making processes?
If your answer to these questions is “no” or along the lines of something similar, then it may be best to scout for other companies or opportunities to place your investments with. At the same time, if your answer to these questions is “yes” but will require you to be more pushy or hands-on as an investor, this could potentially cause you to get in the way of a company’s or startup’s potential success in the future.
Diversify your investment portfolio to prevent financial disaster
As any seasoned investor knows, there are few worse mistakes any investor — regardless of expertise or skill — can make than placing all their eggs in one proverbial basket. In this regard, it is important to understand, especially as one relatively new to the angel investment game, the difference between “high-risk” and “low-risk” investments, as well as how to spot them before an investment is agreed upon.
“I always advise investors to only allocate a smaller portion of their portfolio to those investments which are regarded or identified as more ‘high-risk’ or speculative in regards to their ROI,” DeLong said. “If you’re just starting out investing and looking to get your feet wet, it’s always better to begin by making smaller investments at first. Once you become more knowledgeable and familiar with the nature of the companies you enter into your investment portfolio, you can then focus on writing bigger checks once your portfolio has started gaining some traction.”
In using these tips to help you begin your own journey as an angel investor, you can better help set both yourself (as an investor) and your investments (as financial assets) up for maximizing potential returns. Operating this way will allow you to learn as much as possible about the nature of angel investments today and become a more successful investor in the future.