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How to Become an Angel Investor?

  1. Save Money: First things first. You want to get into angel investing? Make sure your financial house is in order. If you can’t cover your basics, you’ve have no business being in angel investing. Get those savings up, because angel investing is not for the financially faint-hearted. Also to get started with Angel Investing you need to be an accredited investor. Meaning your net worth should be above $1M or you are earning >$200K if you are single or >$300k together if you are married.
  2. Learn About Angel Investing: You can’t just throw money at any startup that crosses your path. You need to know the game. Study the startup playbook, understand the hustle, and get a grip on the challenges they face. Knowledge is power. I recommend following TechCrunch like publications, understand funding trends, cycles, exits and the investing terminology. Most people follow the TechCrunch’s of the world but if you are serious about angel investing then you need to go a step beyond and learn the basics of the field by reading at least the two books listed below. There are other books, but these are a good start. Do not write a cheque before reading these.
    1. Venture Deals by Brad Feld
    2. Angel by Jason Calacanis
  3. Meet People in the Startup World: Networking, networking, networking. Get out there, shake some hands, and build relationships. In the city you are living in find the tech & investing events happening out there and startup meeting founders who are looking to raise funds. Meet other angel investors, venture capitalists, founders and other players in the startup game. I would start with the city you are living in and then do the same on the internet.
  4. Join Angel Investor Groups: Don’t be a lone wolf in this jungle. Join an angel investor pack. Every city has angel groups, you are just a simple google search aways from finding them and meeting the people who are running them or subscribing to their email list. Don’t be afraid to reach these groups via Email, Linkedin etc., If you are not an organic cold emailer, here is a psychological tip, just like you are trying to reach them, the people who are in angel groups or running one are also looking for new investors to join. So don’t hesitate to reach out. You are not loosing anything, email is free. If you are in Greater Seattle Area you might want to check out the community that I created.
  5. Decide What You Want to Invest In: Focus, focus, focus. You can’t be investing in every genre of startups & founders. You need to start focusing on a sector or business model or type of startups that you want to invest in. This should be based on couple of factors:
    1. The companies in that sector are venture scale – meaning can generate 100M+ in revenue if they succeed in next 5-7 years.
    2. You have an insight in to the sector/business model. Based on your profession experience most of us know more about certain type of companies more than the other. For example I know more about how B2B SaaS and cloud companies work based on my career at the big tech. So I try to focus on companies which operate in B2B, Cloud & AI.
    3. Founder Type: I tend to like founders who are 10x builders. Different founders have different strengths, the type of founder I like are the ones who can get to a product faster than others. This is a trait I look for. It takes time to find this quality but this is what I have scoped down in terms of founder type. There are other ways you can form your own narrow category of startups to invest in but this is start.
  6. Get Expert Advice: Assume that you are not a superhero, and even superheroes have sidekicks. So try to find experts who are ahead of you and talk to them to understand the nuances, red flags and reach out to them if you are unsure of a deal. Overtime they will also become your co-investors as well and might share deal flow with you.
  7. Set Aside Some Money to Build a Portfolio: Never risk ruin. Put aside the capital that you are okay to loose or okay to have it illiquid for years. Note that you are bound to fail if you invest in say two or three companies and don’t build a portfolio of early stage investments. All the successful angel investors I talked to on my podcast are successful because they built a portfolio. You can find my early stage investments portfolio here on my website.
  8. Stay Updated: There is so much information about every topic out there today. But you don’t have infinite time. So to stay UpToDate about what’s happening in startups, venture or in the business of technology, find trusted resources that you can follow consistently and avoid random sources. Some unique ways I stay up to date are following investors on twitter, subscribing to great newsletter from tech professions & investors. I am sure you can find more unique sources. You can also follow my newsletter Above Average that I write weekly.

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