One of the best ways to get phenomenal returns on investment is angel investing

You know, buying a stake in a business and watching it grow 50x, and then you retire to the beach

Well, that's how people think it works

but what's it like?

and how do you make money?

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1. The most important thing to grasp is the fact that angel investing is RISKY

that means you can make a boatload, but also lose

like any investing, you want to skew things in your favor, either by having more return for the same risk or the same return with less risk

2. Understanding that, we will talk about the best strategies

basically, there are two

- be selective and try to concentrate
- "spray and pray" ie invest in a large number of holdings and have a big winner generate the bulk of the returns

3. The first consideration is how much capital you have to invest/lose

there are minimum investments sizes in a lot of private businesses, usually $10k, so you can only comfortably spray and pray if you're investing $250k or more (and thus have 25 positions, minimum)

4. obviously, don't risk what is a big number for you. make sure you don't need to touch the money at all and can afford to lose it

these will usually be sitting with no liquidity for 5-7 years, even if you're successful. If you're not, it will be vaporized.

5. if you're more targeted, you can probably start smaller and do 5-10 deals. more than that is not manageble

spray and pray has one HUGE advantage: diversification. a large enough of good business investments and you will make money-- as enough winners, some big, emerge

6. the returns come from the power law-- that means a winning investment will increase in value 10-100x or more, and thereby be the outlier that pays back all of your other investments

you want a Google in your portfolio, and need to be prepared for a lot of dogs along the way

7. Dave McClure, founder of 500 Startups, has a great walkthrough of this approach. https://www.slideshare.net/dmc500hats/from-500-startups-to-500-vcs/18-500_Startups_FullStack_VC

For angels with capital, this is a good model. If you have decent or better deal flow, you can find one or two home runs and get a 2.5x on your overall portfolio over time

8. To do so, you need access to deal flow. This is the HARDEST part, as most angels DON'T SEE good deals. The best ones are snapped up quickly.

How do you find good deals?

- location helps. SF, NYC, Austin, Stockholm, London etc have a lot of good activity
- Angel networks

9. - networking from your own contracts. Serial entrepreneurs and other investors are helpful
- Univeristies
- local business groups
- Angellist
- find ways to cultivate inbound deal flow-- linkedin, a website/blog, Twitter. make it know you're an investor and people contact you

10. For the more curated approach, you use the same deal flow sources, but you also want to make sure that you're only investing in stuff where you can add value.

this is usually in a sector or function that you know well and can bring something to the table the company NEEDS

11. For example... if you're a B2B marketing specialist, you would invest in B2B software and services businesses, and only ones that wanted to work with you

you highlight your experience to them and try to invest on the best terms possible, so you go back and forth

12. What you try to get are either
- better terms on your investment going in (i.e. a discount to prevailing valuation)
- you get options on to BOOST your stake.

this is how you make money day one

13. imagine you invest 25k, and then in return for a skill that you offer, you get advisor shares worth an additional 25k.

your 25k investment is worth 50k

AND if you help really to perform, that 50k will be worth a lot more later

14. this approach is great if you can build up a reputation in your local market or in a certain skillset, as it becomes easier to negotiate better terms over time--

after all, you have testimonials and everything

do this consistently and your returns will jump on the winners

15. the downside is time. you have to actually set aside time and effort to make things happen, so you can't scale up beyond that

if you don't have capital to invest, you can at least get advisor shares and earn yourself pieces of companies

which could be worth a lot over time

16. Example from my own career

- i got approached to invest in a startup. I said I would be a Non-Exec Director re strategy and finance.

in the end I invested $10k, got another $25k of options

i had to prep the fundraising and the board's strategy document, but it was worth it

17. Now, actually, I only invest 50% of the time, the other 50%, I just get offered equity straight away.

If the company is genuinely interesting then I will take the equity, do the work, and watch the value grow as it gets going with the strategy and money in the bank

18. what questions do you have about angel investing?