For many, angel investing is new and widely unknown. With it opening up to the general public (i.e., non-accredited investors), so many questions are being asked as people explore this new world. If you’ve read my other posts, you’ll see that I’ve already answered some of these questions.
The Angel Powwow platform is designed to provide a one-stop place where angel investors can connect and share their insights, goals, opinions, and knowledge. One of this platform’s goals is to educate those interested in angel investing. To that end, the ongoing educational series, published on this site, should be considered an excellent reference resource to further your angel investing knowledge. I’ve already published a couple of posts that you might find of interest, and I will continue to expand the blog post library.
Although there are many questions, this post will focus on a big one, “Who Can Be An Angel Investor?”. As I answer this question, I’ll cover a few others that you should consider as well. By the time you’ve finished reading this article, not only will you know the answer, but you’ll also be better prepared to start your angel investing journey.
Now that the introduction is out of the way, let’s get to that question…
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So, Who Can Be An Angel Investor?
In a nutshell, today, anyone of legal age can be an angel investor. There might be some people hung up on the true definition of an angel investor but, for this post, we’ll consider an angel investor anyone who invests in startups at an early stage.
It used to be that angel investing was reserved for the wealthy elite. The official term is Accredited Investor. You had to have a certain minimum annual income or have a high net-worth to be able to invest as an angel investor. A new law passed a few years back, changed all of that, and opened angel investing up to virtually anyone.
That’s great because now you have the opportunity to invest in companies very early in their development stages and have the potential to enjoy higher returns because of it. Not only that but, because you’ve chosen to invest in a startup company, they might be able to bring their idea(s) to fruition when other investors may have passed them by causing them to close up shop instead.
Now, that doesn’t mean you can toss any amount you wish at a startup and be OK. There are specific requirements, restrictions, conditions, and considerations that will likely apply to your situation…
What Guidelines Apply To Me?
The answer to this question is, “It depends.” Two of the most significant considerations are your net worth or your annual income.
We can break this down into two groups; Accredited and Non-Accredited.
As of this writing, an Accredited investor is defined as an individual whose income is $200,000, or whose joint income is $300,000, in the two most recent years, with an expectation of meeting that income again, or by an individual with an individual or a joint net worth of $1 million (excluding their primary residence).
The easy way to know if you fall into this category is if you don’t fall into the Accredited one, LOL. I figured that was easier than saying the same thing as above but changing it to “whose income isn’t…”, etc.
The first rule is that you need to be of legal age, 18. I need to share this because there are a lot of younger people looking to secure their future. That’s a great mindset but, if you’re under 18, you won’t be able to invest in these opportunities yourself.
Depending on which category you fall under, you might be limited as to how much money you can invest in a twelve-month period. The twelve-month time frame is not January through December; it’s twelve consecutive months from the first investment you make. Your income and so forth will determine your investment limits.
If you’re a non-accredited investor looking to invest in a deal that falls under Regulation A+, you are limited to a maximum of 10% of your annual income or 10% of your annual net worth, whichever is greater.
Under Regulation Crowdfunding, if your annual income or net worth is less than $107,000, you’re limited to 5% but, if both are over that amount, you’re limited to 10%. Please note that if either your annual income or net worth is below $107,000, then you are limited to 5% total, even if the other statistic is over that amount. The rule applies to the lesser statistic.
Many of the investing platforms out there will ask you income information when you invest, to automatically limit your investment activity according to the law and prevent you from over investing. Just keep in mind that these platforms don’t talk with one another, so they won’t protect you in situations where you’re investing on multiple platforms, which is usually the case for most investors. As such, this is something you’ll need to keep track of.
There are no restrictions for accredited investors.
Well, that seems unfair. Maybe, but look at it this way… Until recently, non-accredited investors were locked out of these opportunities. Some people claimed it was just keeping the poor, poor, and making the rich richer, but it was really about protecting people from losing what little they had.
Angel investing, as with any investment platform, is a risky endeavor. If people with lower means put everything they had into an investment and it failed, what would that leave them? These limits are there to protect the investor from putting all of their eggs in one basket.
Now, let’s look at resources for learning more about angel investing…
How Do I Learn About Angel Investing?
Your angel investing education will likely never end. That’s a good thing. There are always new ways of looking at opportunities or even finding out about them in the first place.
Yes, you’ll get to a point where you have your process in place and specific indicators you look for in an opportunity before you invest in it. Still, finding deals, getting different perspectives, learning about new business sectors opening up, and whatnot will be an ever-evolving experience.
To that end, there are many ways to learn more about angel investing…
Come on, did you really think I wasn’t going to list my own website here?
Angel Powwow is a great place to learn more. There are these articles, other angel investors, Live Chat, the forums, and more. Leverage the potential of this site and learn from the other members.
Nothing teaches you more than the act of doing. Once you have the basics down, or think you do anyway, pick an investing platform, select an opportunity, and invest. You’ll learn quite a bit in the process and, hopefully, have fun doing it.
Join groups of angel investors. That can be here on Angel Powwow, social media sites like Facebook, or some other networking platform. Again, there’s so much more you can learn from others in the field.
Investors come from varying levels of expertise and industry backgrounds. You might be able to learn more about a specific type of startup, say a medical startup, from a doctor or nurse than you would from an accountant, etc.
Use that Google-Fu! Today’s search engines are all about information. You might be surprised at what you can glean from a simple web search.
Another research platform to consider is YouTube. I believe it’s the Google of video. There are plenty of information videos out there that might speak to you. Check it out and decide for yourself.
There are tools out there to help you make informed investment decisions. That’s actually what the next section of this post is about. Use the tools available to you. It will make your investing journey that much easier.
As you can see, you have a lot of options when it comes to learning about angel investing. That said, this list is not all-inclusive, and I’m sure there are other resources out there. What’s important is you find what works best for you.
Now, let’s take a look at some tools you might want to consider…
What Tools Should I Consider Using?
Tools are an essential part of any endeavor. Whether you’re rock climbing, piloting a plane, eating a meal, or investing, there are tools you’re going to want to use to get the job done.
Here are a few that I use:
I’m going to start with research. Information is power. The more you know, the better equipped you are to make an informed decision.
Google is my search engine of choice. You don’t have to use it, but I consider it the big dog and the best option.
Perform a search on the company you are considering investing in. Look up the company. Check out the competition. Dig up some history on the founder(s). There’s so much you can glean from doing a little research.
Angel Investing Communities
Here we are again. A plug for Angel Powwow. This is why Angel Powwow exists. By engaging with other angel investors and sharing with one another, not only will you learn more, but you’ll be getting an insight or perspective you might not otherwise have considered.
Now, Angel Powwow isn’t the only player in town, but I’m hoping to grow it into the most desirable destination for angel investors to collaborate.
Due Diligence Services
There are services that will go through much of the due diligence process for you, in exchange for a fee. These can either be great or completely useless. On the one hand, you can save a lot of time and effort by not having to perform it yourself. On the other, there’s a financial cost, and you need to be sure that the service you use is actually providing you a service (see below).
Some services are merely compiling data gathered by a bot on the internet and shoving that data into a cheat sheet of sorts. The problem with this approach is it’s surface only and, frankly, not worth whatever you paid for it. Services that dig through the offering, compare it to the competition, research the founder(s), verify claims, look at the TAM, and so on, are the way to go.
I’ve been using a particular service, the Startup Analysis Boardroom, for some time now and just recently published a review on it. It’s, by far, the best service I’ve come across and I highly recommend it. One of the best features of this particular service is the live consultation offered in the Gold and Platinum membership levels. Do yourself a favor and check them out.
Some great resources for learning about angel investing are the actual platforms you use to invest in companies. StartEngine, Republic, Wefunder, MicroVentures, SeedInvest, and so on can be excellent resources for additional information on angel investing, not to mention that they’re your first stop in reading about the various opportunities available.
Again, this list is not all-inclusive but rather a culmination of what I consider to be some of the best options out there. If you know of others, please share them in the comments below.
Now you have a good idea as to who can be an angel investor. Pretty much anyone. I urge you to look into all of these options for learning more about angel investing. In the end, the best advice I can offer is that you pick what works best for you.
That’s not to say you can’t use all of these resources, because you can. It’s more about how you operate and what methods provide the information in a way that’s easiest for you to digest. If you have the time and inclination, by all means, use all of their resources available to you. If not, be selective. Just be sure you get what you need from whatever resources you end up choosing.
Now, I’d love to hear your thoughts on who can be an angel investor. Do you think it is for everyone? Are there certain people you believe should steer clear of angel investing? Is there another resource available that should be shared here? Let me know by commenting below.