4 Angel Investing Lessons from an Angel Group Veteran

How to Be a Better Angel Investor: Intention, Etiquette, and More

Interest in startup business investment and angel investing is growing. However, those new to this alternative investment space may overlook important foundational considerations on perspective, networking, and communication. After all, there is more to angel investing than profit and loss.

Today’s Angel Investors

Around the time the JOBS Act became law in 2012, some angel groups expressed concern that equity crowdfunding would hurt them due to a sheer increase in the number of investors in the space and the effect that would have on valuations. More investors would, in turn, bring more interest and, therefore, money, which would inflate valuations on potential investments.

Or so the fear went. Today, however, interest in angel investing is growing. Why is this?

The lifting of the US government’s ban on “general solicitation” via Title III of the JOBS Act, the SEC’s subsequent adoption of Regulation Crowdfunding as a response to it and, to a lesser extent, media attention generally, have all piqued the interest of potential investors.

In fact, according to the Center for Venture Research, the number of active angel investors was over 363,000 in 2021. As of December 2023, the Securities and Exchange Commission (SEC) reported that 24.3 million US households qualify for accredited investor status. So, the number of angel investors has the potential to increase dramatically.

In recent years, accredited investors have just begun learning about the value of allocating investment dollars to alternative assets. If you are considering angel investing as a part of your investment strategy, angel groups are among the best places to learn. However, if you are not ready to join an angel group, here are some helpful lessons to get you started.

Lesson 1: Angel Investing is Not Always About Making Money

Angels invest in the very early stages of a startup, making it a highly risky endeavor. Although it sounds counterintuitive, making money isn’t the sole focus for an angel.

In general, angels invest because they like the thrill of the chase and the adventure a startup presents.

If you tend to avoid high-risk investments and uncertainty,  you should avoid angel investing. If money is the sole focus of our investing, later-stage companies with more secure footing might be a better fit.

Lesson 2: Angel Investing is More Like a Date Than a Marriage

Many startups appreciate the insight and connections angels may bring to the table, though their investment capital will probably be appreciated more.

At the same time, angels shouldn’t expect their investment to buy them a physical presence onsite. In other words, the initial interaction may be “hot and heavy,” particularly before a check is written, but it is not likely to last.

Lesson 3: It’s Best to Stick with What You Know

When exploring angel investing, there is a distinct advantage to sticking to what you know. For example, if you are a physician, consider pharma; if you’re in finance, consider fintech.

“Staying in your lane” will help you increase your chances of picking a winner. This practice will also help you have a more meaningful involvement with the company in which you invest because you will be able to provide advice from your own lived experience.

Lesson 4: Treat People Well

One of the great things about becoming an angel investor is that you will have the opportunity to meet a diverse pool of driven entrepreneurs. If you decide to join an angel group, you will find yourself surrounded by many smart investors.

These meetings can be a great place to meet people and, over time, forge some close friendships.

One of the things I will never forget is the way one member treated the entrepreneurs who came to pitch. This angel, though I don’t think I ever saw him write a check, cross-examined every CEO who came to pitch the group as if they were on trial. The angel’s main priority seemed to be to elevate himself rather than work with the others in the room.

Being in control of the funds doesn’t give you the right to demean those doing the pitching. Be respectful and humble.

These angel investing lessons, while not technical or exclusive to angels, can change how you approach your investments and whether or not you make the most of your knowledge and connections.

We think you’ll also like:

1. An Introduction to the World of Angel Investing
2. Equity Crowdfunding for the New Angel Investor
3. Alternative Assets and the “Average” Accredited Investor Series

[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. The Start-Up/Small Business Advisor
2. Earning Green by Investing Green
3. Crowdfunding

This is an updated version of an article originally published on December 18, 2018, and recently republished on October 9, 2020.]

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