It always amazes me how inaccessible angel investing appears, from the outside looking in, and how angel investors have shrouded themselves in this unobtainable mystique.
Anyone can be an angel investor, absolutely anyone. True, it's hard to be a great angel investor (which I am certainly not claiming to be!) but it is a skill that can be developed.
Understand what an angel investor is and the risk it entails
The definition means different things to different people and there are a few types of angel investors. Wikipedia has captured the essence of an what an angel investor is:
An angel investor (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. Angel investors usually give support to start-ups at the initial moments (where risks of the start-ups failing are relatively high) and when most investors are not prepared to back them.
Angel investors are often the first to give money to start-ups, at a stage where investment and support is critical but survival is far from guaranteed. Investments at this stage are inherently risky; Nesta’s Siding with AngelsReport highlighted that over 50% of angel investments returned less than the initial investment.
Angel investments are also long term and largely illiquid investments, typically returns crystallise over 5-7 years. Only invest what you are willing and able to lose.
Start with crowdfunding platforms
Now let’s get to the juice.
Crowdcube and Seedrs are great platforms (which will soon become one) to start your angel investing journey. They have made angel investing extremely accessible; investors can invest a minimum of £10.
I advise all angel investors that are new to investing to start by having a browse on equity crowdfunding platforms. This will be a great way to get access to start-ups, without having to source your own deal flow. These platforms also have great education content and resources for new investors to help bridge the education gap i.e. definition of Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).
Pick sectors/verticals you have an interest or insight in
I recommend picking a start-up that is in an industry you are interested in or have experience in. This should in theory give you an understanding of the market factors that could impact a start-up, and allow you to assess whether some of the key assumptions of the business are reasonable.
I tend to look at the financial services start-ups , as I have nearly 10 years’ experience in the sector. This gives me an insight into key market dynamics such as the typical revenue models, regulatory requirements, potential sales channels and strategic partnerships.
Read, read, read
Read the start-ups’ pitchdecks, the discussions and comments from prospective investors, and research reports. You will learn what areas other investors are focussing on and you can assess the quality of the response from the founders. Reading other peoples’ questions and comments is also a cheat code to asking better questions.
Before making your angel investment, I’d recommend always requesting the pitch deck. Have a look through and see whether it engages you. Ask yourself basic questions; does it make sense? How does it make money? Can you see the journey? Has the vision and opportunity been communicated clearly? Does the team have the credentials/ability to execute the vision?
Finally, supplement your reading with additional research and analysts’ reports, I tend to read 2 or 3 reports. The Big 4 consultancy firms provide a lot of data and insights into trends within the financial services sector. It’s important to find a good source for research in the sector of the start-up you are interested in.
I dive into the discussion section and ask my own questions based on my reading and research. I tend to ask questions around the go-to-market strategy, key hires, distribution channels, FCA authorisation, cost of customer acquisition (will happily dive into these in future blog posts).
I find that most start-ups on a crowdfunding platform will endeavour to answer your questions, some are even willing to arrange a short call or chat so that you can get to know them better and get a better feel for the team.
Articulate why you think it's a good investment
I like to write a 2/3 page summary of what I think about the investment opportunity. It’s a great way to express your thoughts and rationale as to why it was a good investment and what the key challenges/risks are. This allows me to express my rationale and then challenge it to make it even better.
Here’s one I completed earlier (sad Blue Peter reference) - Clim8 - request access here if you want access.
My current paper return on Clim8 is 1.8x initial investment.
Rinse and repeat
Do 5 or so angel investments to get a feel for whether it's an asset class and investment type that suits you. Angel investing is like a muscle, the more you work at it, the stronger it will be.
I’ve made 8 investments over the past couple of years over crowdfunding platforms:
Clim8 - a fintech app for sustainable investing, aimed at a community who want to make a positive impact on climate change.
Curve - an Over-The-Top banking platform that allows you to connect all your accounts to one smart card and app.
IHaveit - a one-stop place for users to collect, buy, sell and value Vinyl Records, CD's and Cassette Tapes.
Lifetise - An Award-winning Fintech platform helping people combat Covid19 and afford life goals: marriage, kids, home, retirement.
Moneybox - helping people save and invest for their future.
Monzo - an online bank based in the United Kingdom. Monzo was one of the earliest of a number of new app-based challenger banks in the UK.
Numerous - aims to establish a new data sharing economy - using consensually-shared personal data to drive sales and insight for brands and financial reward for users.
Uniti - an innovative Swedish Electric Vehicle startup that's been called the "Tesla for megacities" by Business Insider.
My investment size ranges from £10 - £2,000.
There are a series of angel investing masterclasses/education platforms where you can receive a formal education on how some of the best angels invest and look at deals:
The Effective Angel Investor run by UKBAA;
Angel Investment School run by Andy Ayim;
Angel University run by Jason Calacanis.
Join an angel syndicate or network
Finally, consider joining an angel syndicate or angel network so that you can invest alongside other angel investors and learn from their experience. Just to note a couple, which by no means are all of them:
Shameless Plug - if you are interested in joining Community Growth Venture’s syndicate then please complete this form or send us an email: firstname.lastname@example.org, we invest in diverse founders.
The Future of UK Angel Investing by Pietro Invernizzi
Europe Needs an Angel Investing Revolution by Sarah Drinkwater
How to Get Started as a Microangel Investor in Startups by Elizabeth Yin
None of the material within this blog post, should be considered as a recommendation to invest in any company or to join CGV’s Angel Investment Syndicate and recipients are recommended to seek their own financial and/or other advice. None of the information within this blog post constitutes an offer to sell or solicitation of an offer to buy any securities or any of the business or assets described therein.