This is part I of a multi-post series where I try to learn more about angel investing, spoken from a “retail investors” point of view.
Background
I’ve been thinking about finance and accessibility.
I was 22 years old when I heard that investing money every month in the stock market (global index funds) is a financially sound thing to do. This wasn’t taught to me in school. In fact, I can’t remember anything being taught at all on the topic of personal finance. After hearing about the stock market, it took me another year to come around and get started. Starting seemed difficult because I had a lot of presumptions about the space - many of which turned out to be false.
There seem to be a lot of great things happening in the area of finance. A democratization process is happening, where more people than ever have the ability to invest money through apps such as Robinhood in the US, or Avanza and Nordnet, the equivalents here in Sweden.
While things are getting better, there are still areas of finance and business that still seem way out of reach for the normal person. And perhaps for a good reason.
Angels On Earth - Definitions
I got interested in the area of angel investing last year when accidentally stumbling upon the book “Angel: How to Invest in Technology Startups” by Jason Calacanis - A great read on the mysterious world of angel investing, and a step by step guide to succeding at it.
Let’s start by defining angel investing:
An angel investor is a private person who invests money into the early stages of a company to help them get up and running. Since the company at hand might not even have a product and most likely not any profits at this point, the risk of it never taking off - effectively making you lose all your money - is far greater than when investing in the public markets (the stock market).
The investments are usually done by a group of angel investors, also known as a syndicate. These groups might be new for each round, and one angel investor will usually take the lead of the investment round, doing due diligence (research) of the company at hand. Entrepreneurs will pitch their ideas to angels who then decide whether they want to invest or not (something most of us have seen portrayed in shows such as Shark Tank or Dragons Den).
Mythical.
I mean, just the name - Angel Investor - and TV-shows such as the ones above, lead to this profession feeling almost larger than life, especially to ordinary people with normal jobs. But is there a way into that world? Do you need to be old, rich, and wear a suit to help companies succeed?
There is another potential benefit of being an early-stage investor. As an investor, you are not only contributing financially to the success but might also lend your skills, experience, and network to the entrepreneurs. Anybody who has seen Shark Tank knows this. If many angels want to invest in their company, the entrepreneur will then most likely choose the angel with the most relevant business experience or network. The angel might also end up being on the company’s board of directors or do work as an advisor.
Here’s the problem. I get my most of info from a highly dramatized TV-show.
Why Do This?
I love disruptive technology and want to help bring ideas to life, but I’m not sure I fit the role of a founder. The idea of being involved in different interesting companies at an early stage. Strategizing, brainstorming, and developing plans. Providing expertise but not working 80 hours a week. Taking big risks and leaps of faith, and perhaps being rewarded many times over for that risk-taking. Big returns on angel investments are rare, but not uncommon, with returns at the 10x-100x level.
It sounds like it could be the best job in the world.
The obvious catch: You seem to need a lot of money to get started, since you are bound to lose money on most of your investments.
In the US, you need to be an accredited investor to even legally be allowed to invest in startups.
The criteria for becoming an accredited investor is to have at least 1 million dollars of net worth (not counting your primary residence) or a yearly salary of over $200,000 a year.
In Sweden however, we don’t have these criteria. Anyone could potentially invest in startups.
One might argue that If one wants to help early-stage companies, but doesn’t have a ton of money to go around, they should simply attempt to join them and work for them.
That might be true. But let’s keep an open mind.
The Road Ahead
This series of blog posts will document my journey towards understanding the world of angel investing and board of directors - these very mysterious and exclusive areas of the financial world.
I’ll admit I know very little - but I’m curious. And that’s a good start.
I will write from a Stockholm perspective since that is where I live and work.
Part II of this series will feature interviews with some active angel investors in Sweden. (Hit me up if you know one)
Part III might be about the democratization process of angel investing, discussing websites such as Angel.co, Pepins, or crowdfunding companies such as Kickstarter (a form of angel investing without benefits of ownership)
Part IV might be about my first angel investment.
Is there simply a money-gap type issue with getting involved in early-stage startups, or is there also a knowledge gap. Can I use my platform to spread knowledge and get more people involved in the process of helping new technology succeed in the world?
These are the questions I’m trying to answer.
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See you in Part II