There are many ways to make money through the stock market, but it can be a confusing thing to navigate. How do you know the best way to invest? If you currently invest in the stock market, you want to see returns on your investment. There are a plethora of stock options out there to purchase that can help grow your net worth. One of the best ways to get ahead of a trend is to consider being an angel investor. This can allow you to cash in your stock shares for some very profitable returns from emerging companies.
What Is An Angel Investor?
When small businesses are just starting, they need capital to purchase things like equipment, services, stock, and so forth. Many times, the company's entrepreneur doesn't have enough funds saved up to start their business. In this case, they look for an alternative source of funding.
Many traditional bank lenders will avoid funding startups because they are a high-risk investment. This situation is when an angel investor can help. Angel investing is when an individual who has their own money to invest funds a startup business. In most cases, the angel investor gets stock in the company in exchange for the capital they supplied.
Typical Sources of Angel Investors
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“Angel investor” is a general term for investors. You can find these types of investors in a lot of different forms. If you want to be a part of some group and are looking for angel investing opportunities, then going for one of these options can turn out to be very profitable for you as an investor or as a business startup looking for funds.
Here are the most sources of angel investors:
The most common origin of funding that startups go for is getting help from family and friends. However, it is a precarious form of investment, as most startups are more prone to failure than success. If you don’t have a sound business plan, you must be upfront about the risk of failure so that your relationships are not affected.
Another good source of investment for business startups is looking for successful businessmen or individuals with a high net worth who are willing to invest in your business. This method is conducted mainly through word of mouth agreements or through local associations to make the lending legal.
Individual angel investors are increasingly opting for a syndicate, which increases access to potential investment options. Different investors contribute funds to this syndicate, and a team of professionals research various startups and invest in something that seems the most profitable.
Crowdfunding is a type of online investing group that gathers several investors on a single platform. By attracting large groups of individuals ready to invest amounts as small as $1,000 or as large as $100,000, crowdfunding can be used to raise a lot of funds for a startup.
Want to learn more about crowdfunding? Read A Crowdfunder's Strategy Guide (or listen to the audiobook!) to become an expert.
Why Should You Consider Being An Angel Investor?
Now that you have a pretty clear understanding of what angel investing is, it's time to think about why it's a good fit for you. While angel investing is likely not going to be your only investment strategy, it should be part of it. Here are some reasons why you should really consider becoming an angel investor.
As you learned above, when you fund a startup company as an angel investor, you typically receive ownership stock in the company. As long as you pick to fund a startup that has a great idea and the staff to pull it off in today's market, you're going to see a massive increase in your stock.
With the use of enhanced technology, there are more and more startup companies that are growing massively in their first few years. You can take advantage of this and cash in at the right time. A professionally managed angel portfolio can earn up to 25% returns on investment. If done the right way, angel investing is the best way to have some specific cash returns rather than flowing huge cash into some of the more volatile public markets out there.
2. Support New Entrepreneurs
Angel investing is one great way to show your support for new entrepreneurs. If you've ever started your own business before, then you likely know just how vital support is in those early years. Think of angel investing opportunities as your chance to provide the necessary support for new business owners.
Apart from providing monetary support, you can also provide industry knowledge. While a new entrepreneur may have a great idea, they still need to be able to manage a team to make that idea work. Many will look to you for guidance on this issue. You'll likely love being able to give them the knowledge, and it will assist in ensuring the future success of the business that you have your money invested in.
A lot of angel investors are idealists. They see the world as a great big opportunity for positive change. As they were once entrepreneurs themselves, they like to invest in new and innovative ideas that bring a vague satisfaction within themselves and help them play their part in the betterment of the world.
3. You Have a Say in Your Investment
When investing in the stock market by purchasing established company stocks, you don't really have any control over your investment. If the company creates great products or services, you get to cash in on a significant return. However, if they run into management snags or focus on creating products or services that don't sell, you could see your money drop.
When you become an angel investor, you have more say in the future of the company. While you won't be running the company as if it was yours, you still will be associating with the business owners regularly. You will know what their plans are and influence them to ensure the business's best chance for success.
When you are a part of an angel group, you get the extra benefits of the best minds in the market with an extensive background and vast experience in running a business. From biotech to pharma to IT and construction, there is always someone in the room to help others. It is truly a growing space where the experiences of other people have a direct and healthy impact on the performance of a startup. And eventually, when the business succeeds, your stock prices go up.
4. Expand Your Network
When you start to become active in the angel investing field, you'll get to expand your network of people. This network helps if you're interested in various new startup investments. The more you invest in a specific industry, the more likely you'll be to start experiencing the latest funding options coming to your doorstep.
As you build your network, you're going to need a business card holder so that you can easily access and organize all your contacts, as well as your own card. Find one on Etsy today.
The Bottom Line
If you're looking for a great investment strategy you can employ to increase your net worth, angel investing is a good one to look into. These provide so much flexibility on your part because you get to choose which startups you want to invest in and have more control over their future success. If you're not already an angel investor, you should really consider becoming one for the various reasons listed above.
Just like everything else, angel investment is not all sunshine and rainbows. There are a few ground rules you must follow if you don’t want to be a fallen angel. It doesn’t matter how you purse it, the key to success in any venture lies in extensive research and getting as much advice as you can from trusted peers.
Don’t dive headfirst. Before making any huge investments, check out local angel groups near you and study their profits and losses. Now that you know everything about being an angel and how to be successful at it, there is not much stopping you.