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How to become an angel investor
An angel investor is someone who invests in private, early-stage startup companies. Angel investments are made in companies when they are quite immature. A company which an angel invests in is typically valued anywhere from $1 million to $100 million, depending on how much progress has been made, and how attractive investors believe the company is.
Prior to 2016, you had to be a wealthy “accredited investor” to invest in most private startup deals. However, this all changed from 2015-2016, thanks to the JOBS Act, a piece of legislation which enabled regulated startup investing (which is what we do at Republic).
Today anyone can invest in private startups on platforms like Republic. Since we launched in 2016, our 700,000 members have invested more than $150 million across 200 companies (these figures include investments made with our affiliated investment advisor, which facilitates another type of angel investing).
At any given time, we typically have dozens of startup deals to choose from. Minimum investments start at just $10, but are more commonly $50-100. Finally, everyone has the chance to be an angel investor.
What angel investors look for
Angel investors invest in companies based on their estimated potential. Here are common traits that angels look for.
• Traction – how much progress a company has made
• Team – how experienced and successful the team is
• Product – is the product selling well? Is it a big market?
Angel investors agree with founders on a “price” to pay to invest in the company. This is known as the valuation. For example, if an angel invests $100,000 in a company at a $1,000,000 valuation, they own approximately 10% of the company.
Valuations (prices) are an estimate of the potential of the company. Companies with more “traction” (progress) tend to get higher valuations. The faster a company is growing, the higher its valuation tends to be. It is not uncommon to see startup companies growing revenue faster than 100% a year.
Here are some common valuation ranges for the different stages of startup investing. Keep in mind that these vary widely.
• Seed: $2 million to $20 million
• Series A: $8 million to $50 million
• Series B: $50 million to $200 million
• Series C-F: $200 million to $10+ billion
On Republic, we mostly offer seed and series A investments. This is an earlier stage of company development, where valuations are generally lower. So you are getting in earlier, but there is more risk involved.
Building a diverse portfolio
Startups are high risk, high reward investments. Therefore it is important to invest in multiple opportunities. Many successful angel investors and venture capitalists recommend investing in at least 10-20 different startups.
If you only invest in one or two companies, the chances of finding a big winner are low. Some startups fail and result in a total loss. However, if you invest across a large number of promising startups, you will have a much better chance of investing in a company which has a large “exit” (IPO or acquisition).
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