As a startup founder or small business owner in Singapore, you know that securing funding is essential for growth. Angel investing is a popular option, but it can be overwhelming to navigate the world of angel investing. That’s why we’ve compiled the 20 rules of angel investing to help you make informed decisions.
Rule #1: Invest in what you know
According to angel investor and entrepreneur Tim Ferriss, investing in what you know is the most important rule of angel investing. You should only invest in industries you understand and have experience in. This will help you make smarter investment decisions and avoid costly mistakes.
Rule #2: Do your due diligence
Before investing, conduct thorough due diligence on the company and its founders. This includes researching the market, competition, and financials. It’s also crucial to meet with the founders and ask tough questions to ensure they have a solid business plan and the drive to succeed.
Rule #3: Diversify your portfolio
Angel investing is high risk, high reward. To mitigate risk, it’s essential to diversify your portfolio by investing in multiple companies across different industries. This will help you spread your risk and increase your chances of success.
Rule #4: Invest in the team
As the saying goes, “invest in the jockey, not the horse.” The team is the most critical factor in the success of a startup. Look for founders who have a track record of success, complementary skills, and a shared vision for the company’s future.
Rule #5: Set realistic expectations
Angel investing is a long-term game. It can take years for a startup to achieve success, and there’s always the risk of failure. Set realistic expectations and be prepared to wait for returns.
Rule #6: Understand the terms
Before investing, make sure you understand the terms of the deal. This includes the valuation, equity, and any potential dilution. It’s also crucial to have a clear exit strategy in place.
Rule #7: Be patient
Investing in startups requires patience. It can take years for a company to achieve success, and there will be ups and downs along the way. Be patient and stay committed to your investments.
Rule #8: Network
Networking is essential in the world of angel investing. Attend industry events, join angel groups, and connect with other investors to stay up-to-date on the latest trends and opportunities.
Rule #9: Be prepared to add value
As an angel investor, you should be prepared to add value beyond just your money. This can include providing mentorship, introductions to potential customers or partners, and strategic advice.
Rule #10: Know your limits
Investing in startups can be exciting, but it’s crucial to know your limits. Don’t invest more than you can afford to lose, and don’t let your emotions cloud your judgement.
Rule #11: Keep an open mind
Be open to new ideas and approaches. Some of the most successful startups have disrupted traditional industries by thinking outside the box.
Rule #12: Look for a competitive advantage
Invest in companies that have a competitive advantage, whether it’s a unique product or service, proprietary technology, or a strong brand.
Rule #13: Invest in the problem, not the solution
Look for startups that are solving real problems, not just creating new products or services. The best startups are those that are addressing a significant pain point in the market.
Rule #14: Be aware of regulatory risks
Investing in startups can come with regulatory risks, particularly in highly regulated industries like finance and healthcare. Make sure you understand the regulatory landscape before investing.
Rule #15: Consider the exit strategy
Before investing, consider the potential exit strategy. This could include an IPO, acquisition, or merger. Make sure the company has a clear plan for achieving an exit.
Rule #16: Be prepared to walk away
Not every investment will be a success. Be prepared to walk away from a deal if it doesn’t meet your criteria or if the founders aren’t a good fit.
Rule #17: Don’t be afraid to ask for help
Angel investing can be complex. Don’t be afraid to ask for help from other investors or industry experts.
Rule #18: Keep learning
The world of angel investing is constantly evolving. Stay up-to-date on the latest trends and best practices by reading industry publications, attending events, and connecting with other investors.
Rule #19: Be transparent
Transparency is crucial in the world of angel investing. Be upfront with the founders about your expectations and communicate openly throughout the investment process.
Rule #20: Have fun!
Angel investing can be a thrilling and rewarding experience. Enjoy the journey and celebrate the successes along the way.
In conclusion, angel investing can be a valuable source of funding and mentorship for startups. By following these 20 rules of angel investing, you can increase your chances of success and navigate this exciting but challenging field with confidence. Happy investing!