Angel Investing: The Essentials for New Investors

You’ve decided to venture into the world of angel investing. As you embark on this new journey, it’s important to keep in mind some valuable advice from experienced investors.

Starting small, conducting thorough research, diversifying your portfolio, and networking are just a few key aspects that can help you navigate the angel investing landscape. So, let’s delve into the detail.

Start Small, Gain Experience

When you start out on your angel investing journey, most investors start with several smaller investments. Focus on gaining experience and getting to grips with angel investing before making significant commitments. By starting small, you can familiarise yourself with the process, learn from your successes and failures, and build your confidence as an angel investor.

Build an Angel Portfolio

Diversification can help in minimising total risk and increasing your chances of success. Most investors spread their 10+ investments across different early-stage businesses.  Focus on the markets and technologies that you understand. This way, even if one investment doesn’t perform as expected, your overall portfolio can still thrive, thanks to the potential success of other investments. Typically, 80-90% of investors’ returns come from 10-20% of portfolios.

Manage your Expectations

Angel investing is a long-term thing. It’s essential to be patient and manage your expectations. It may take several years before you see significant returns on your investments. Stay committed, trust the process, and remain focused on your long-term investment goals, as it is usually not possible that investments dis-invest in the short term.

Prepare Yourself for Losses

Angel investing carries inherent risks, and not every investment will be successful. It’s crucial to accept this reality and be mentally and financially prepared for these potential losses. While losses are disappointing, they are an inherent part of the investment process. Successful investors learn from their failures and adapt their strategy.

Do the Due Diligence

Thorough research is crucial in angel investing. Before investing in an early-stage business, take the time to investigate their market, their product or service, and essentially, their team – meet them on-site if you can. Understanding the potential risks, market trends, and competitive landscape helps enable you to make more informed investment decisions. Gut feel is dangerous, data and research are key! Ask as many questions as you can.

Build Connections

Network and collaborate with fellow angel investors, entrepreneurs, and industry experts. Attend networking events, join angel groups, and participate in syndicates. Networking not only allows access to knowledge and opportunities but also provides a platform to learn from more experienced investors and share insights with your peers.

Practice Makes Perfect

Joining a syndicate or an angel group can be immensely beneficial for inexperienced investors. By being part of such a community, you can observe a higher volume of deal flow and witness experienced angels in action. This collaborative approach not only makes the learning process more enjoyable but also allows you to make smaller investments, lowering the risk per deal and enabling you to develop your skills and confidence at a faster pace.

Engage with Start-ups in your Portfolio

Actively engaging with the companies in your portfolio can be immensely valuable. Offer guidance, support, and leverage your network to help them succeed. By providing mentorship and strategic advice, you can contribute to their growth and increase the chances of a successful outcome for both parties.

Dorset Business Angels provide unregulated, private equity investment opportunities to local High Net Worth and Sophisticated Investors. We bring early-stage businesses, particularly in the south of England, together with investors to accelerate their growth.

Don McQueen, DBA Chairman and experienced angel investor says, “Angel investing is a marathon, not a sprint and it can be a lot of fun along the way. It’s advisable to keep funds aside for follow-ons and essential to review a lot of deals. This can take some heavy lifting when you’re on your own, and why joining a syndicate or angel group like Dorset Business Angels is useful in so many ways.

Don goes on to say, “Under EIS and SEIS there are financial incentives to be had in the form of income tax relief for investors. It’s worthwhile researching and understanding the impact of these incentives and a good place to start is the blog we wrote on the subject which includes links for further reading.”

Formed in 2013, Dorset Business Angels is a member of the UK Business Angels Association and in 2019 signed up to the Investing in Women Code. DBA hosts four pitch events each year in Bournemouth, bringing entrepreneurs and investors together for an evening of networking, pitch presentations and discussion. Check out our events page for more details and to find out about membership, visit this page.

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