Top tips for first-time startup investors

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There are a number of increasingly innovative ways to raise funding for startups these days. The Kickstarter project, for example, is an online database of projects seeking donations to get started, with no share in profits but some kind of recompense for investors. Kickstarter, however, works on the basis of collecting lots of donations of very small amounts. For serious startups, an investor (or group of investors) is still probably the only way that projects can get off the ground.

1. Get Your Check Handy

Make sure that you have access to your money, so that your capital can be ready to invest once you find a great startup. You don’t want to have to wait to liquidate a CD or a stock, or try to get money out of your IRA and watch a great opportunity pass you by, do you? In addition to this, you don’t want to waste the startup’s time if you can’t get access to your capital.

2. Know the Risk

Most of startups fail. But as long as you understand that the investment may be risky, and you might not get your money back, then you are at least being realistic when contemplating about becoming an angel investor.

3. Invest in Multiple Deals

Knowing the high percentage at which startups fail, it’s wise to spread your risk by investing in more than one. The idea is that you invest in a lot of deals early on, and then trim down your focus to those that are more successful and require additional funding.

4. Be Patient

You need to understand that even if your startup is successful, it could take five or more years to get your investment back. The most common way to get your money out of a private company is a liquidity event, like public offering or an acquisition by another company. Those events take even up to ten years sometimes. So be patient.

5. Know the Exit Strategy

Every startup should have a clear exit strategy that they can share with investors. They should have a list of competitors who might be interested in an acquisition, or a plan to go public like what LinkedIn or Facebook did. If a startup is not clear on how to make an exit strategy, or if they can’t provide you a list of potential competitors, then you should think twice about investing.

6. Mentoring and Connections

While you’re assessing a startup for investment, it is probably looking at what you can bring to the table besides the fund. A huge part of angel investing is helping out the companies by either mentoring them or connecting them to other people who can help them succeed. Investing isn’t just about the money, you know.

The rewards for investors can be significant, both financially and professionally, and by achieving the right balance between risk and innovation, investors will find that there are countless valuable opportunities out there.