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Habits of Successful Angel Investors

September 4, 2019

Habits of Successful Angel Investors

Habits of Successful Angel Investors

Compiled and edited by: Peter Mastorakos

Successful investing is smart investing, but it is not only about what you know; achieving success requires a medley of strategic and intuitive habits. So, what kind of behaviours separate a good angel investor from a great one? Here are eight insights about the key practices of those who have found success:

  1. They can read people.

    Successful angel investors are able to assess the team presenting to them for both positive and negative attributes. An entrepreneur should be tenacious, of strong character and honest. To learn more about interviewing for character, read our two-part blog post.

  2. They don’t employ a shotgun approach

    Successful angel investors have a strategy behind the ventures they choose to support. Picking successful companies is not about throwing money at a bunch of opportunities and hoping that something sticks. They take the time to uncover the really good opportunities and foster the growth of the great ones so that they can become prosperous.

  3. They understand risk management

    There are many layers of risk, so a good process and good people are both critical to risk management. A successful angel investor will generally have a strong team to support their investments. They are members of a strong angel group with a well-defined due diligence process and varied areas of expertise. As a team, they will have the experience to ask the difficult questions and to assess the validity of the answers.

  4. They have a diverse portfolio

    A successful angel will have invested in a diverse range of companies. When planning their angel investment portfolio, successful angels consider industry, type of entrepreneur and stage of company to increase overall returns. Data suggests that with good risk management and proper diversification, this asset class can earn returns of 30% or more.

  5. They plan their exit

    Successful angel investors are proactive with regard to the timing of possible exits and their size. From the outset, they use the venture’s Board of Directors to take the emotion out of the planning, timing and targeted amount of the liquidity event. They know it is important to be as realistic as possible in exit planning.

  6. They invest their time

    Successful angels invest not just their money but also their time and expertise. They serve as mentors, coaches, advisory board members, corporate board members, brand ambassadors and/or networkers for the venture.

  7. They diligently track their history

    A successful angel will keep detailed records of all transactions, especially capital restructuring events including diarizing warrant expiries. They continually evaluate returns and stay on top of news and events.

  8. They always save some dry powder

    A successful angel investor will manage their investment portfolio with the expectation that there will be additional rounds of fundraising when ventures successfully hit milestones. To employ this strategy, set a schedule and estimate the time and potential value of fundraising opportunities. Successful angels may take advantage of profitable exits from previous investments, but they don’t depend on unreliable cash flow. Rather, they reserve a reasonable percentage of their net worth available for investment.