With more than 30 years of experience investing in private and public markets, Mark Lyttleton is an angel investor and business mentor.
Also known as a seed investor, an angel investor is an individual who provides capital for businesses, usually receiving ownership equity or convertible debt in return. For statistics on angel investing in Europe, please view the embedded infographic.
The term ‘angel’ actually originated in Broadway theatre, where it was used to describe a wealthy individual who provided money to fund theatrical productions that would otherwise be shut down.
Angel investors are usually people who have built their own successful businesses, whose reasons for investing go beyond pure financial return. You can learn about the incentives of angel investment from a business owner’s perspective by viewing the embedded PDF.
This article will explore four key considerations for angel investors today, from the importance of diversification to Fear of Missing Out.
Patience
The script of a three- to four-year growth period followed by a prompt exit is rarely how real-life investments play out. Deals almost always take longer to deliver than anticipated at the outset simply because life gets in the way. A product may gain less traction than anticipated, businesses take longer to mature, or even events in a founder’s personal life could pull them off track. Investors need to have realistic expectations in evaluating investment opportunities as well as monitoring existing investments.
Getting Involved
While some investments will get on and grind away without the need or desire for deeper involvement, a proportion will require greater assistance. Business angels need to identify what kind of investor they are – i.e. whether they are prepared to be hands-on or not – and ensure that they are clear with founders about this right from the start.
Diversification
While focussing on a single area of expertise is a perfectly valid strategy, many angel investors prefer to diversify because it presents the opportunity to learn about different themes and industries, as well as conferring a degree of protection if an industry that is thriving today suddenly blows cold tomorrow. You can learn more about the importance of investment diversification by viewing the embedded video.
Fear of Missing Out (FOMO)
FOMO has been a powerful force in the market recently, with valuations often moving at a lightning fast pace, as seen in many private company funding rounds in 2020 and early 2021. Not since the dot-com boom of the late 1990s has FOMO been such a driving force behind investment decisions, with investors agreeing to invest in companies on the basis of brief conversations and pure trust in founders and their concepts. The recent spectacular collapse of FTX in a matter of days, alongside companies such as Carvana, shows the importance of due diligence before investing and being somewhat cautious when valuations move too quickly.