What Every First-Time Angel Investor Should Know Before Making Their First Investment

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For founders bootstrapping their first business, getting an angel investor on board can change their company’s trajectory practically overnight.

When considering an investment in a startup, conduct more due diligence on the people behind it than the idea or product itselfIt’s the company’s founders and executives who are going to see the concept become a reality, grow sales and profits, keep margins in line, and maintain a motivated and capable workforce.

When investing, try to ensure there is an adequate treasury for ESOP and any other possible dilutable events on the horizon. Ultimately I like to consider my downside risk. While I understand my investment may go to $0, I also try to consider in a worst-case scenario, what would someone else pay for this business? If the business is currently valuing itself at $10M but I feel the assets, goodwill, and the team is worth $4M in a worst-case scenario, then perhaps my downside risk is closer to 60% vs. 100%.

When seeking investments, I look into both the history of related industries — like the success of the recreational and prescription marijuana industry — and their continued growth. Even though the legalization of the market is forthcoming, the success of related products indicates that this market will grow as the public becomes more educated about the product.

 

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