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  • Bilanz Capital

Angel Investing 101: Essential Pointers to Consider Before Investing in Startups"


Investing in startups can be an exciting opportunity, but it is also one of the riskiest investments. To navigate through the complexities of this world, it's important to stick to the basics. Here are some essential pointers to keep in mind:


1. Before considering startup investments, make sure you have already made standard investments such as FDs (Yes FDs), Mutual Funds, and Equity portfolios. If you still have liquid income and want to invest in startups, be prepared for the possibility that it may become a zero-return investment. Also, keep in mind that startup investments are illiquid, and you may not be able to sell them whenever you want, even at a discount.


2. It's important to have enough liquidity or visibility of such liquidity to invest in at least 10 startups. Investing in just one or two startups and expecting a 10x return is not a wise expectation unless you're The Chosen One.


3. Diversify your startup portfolio not only by the number of startups but also by sectors. Try to pick at least two startups in your chosen sectors or sectors that you understand.


4. For your first few investments, opt for a simple structure - cash for equity with a couple of mandatory rights. Hire a lawyer with experience in executing definitive agreements and make sure you understand your rights such as Tag Along, Anti Dilution, etc. You don't need to be an expert, but having a fundamental understanding of these terms is essential.


5. If you're an Ultra High Net Worth Individual (UHNI), consider investing in a couple of Venture Capital (VC) funds that are coming up with new funds and ask for co-investment rights. This way, you can double down on the startups active in sectors that you understand or would like to invest in.


Investing in startups can be a thrilling journey, but it's crucial to approach it with caution and follow the basics to increase your chances of success.


Disclaimer: This is just an opinion. Don't use this as a basis for any investment-related decision/s. image credit www.fotor.com


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