Navigating the World of Angel Investing

As the CEO of Wayfinders, an accelerator that builds and invests in businesses, and as an individual angel investor, I've had my fair share of experiences in the world of startups and investments.

Angel investing can be incredibly rewarding, both financially and personally, but it also comes with its own set of challenges. In the last week or so I have been asked multiple times how I got into angel investing and how I go about choosing my investments so here’s my take on how to navigate this exciting landscape, what to look for, how to secure yourself, and how to exit when the time is right.

To start with it’s more than just the potential financial returns for me. It's about being part of the entrepreneurial journey, supporting innovative ideas, and helping passionate founders turn their dreams into reality. Plus, let’s face it, there’s nothing quite like the thrill of spotting the next big thing before everyone else does!

When it comes to choosing startups to invest in, a few key factors always stand out for me. First and foremost, the team behind the startup is absolutely crucial. A great idea is nothing without a great team to execute it. I look for founders who are not only passionate and knowledgeable but also resilient and adaptable. Startup life is a rollercoaster, and I want to back those who can handle the highs and lows with grace and tenacity.

Next, I do my research on the market potential. Is there a real need for this product or service? Is the market big enough to support significant growth? I don’t necessarily need for companies to be breaking their market and innovating something unprecedented, but they do need to be addressing clear pain points in defined, growing markets. We want to ensure there's a demand for the solution they’re offering, giving the business the best possible chance to thrive.

Can the founder clearly articulate a strong value proposition and a clear path to market? So many great ideas die through lack of execution or distribution. So a really clear plan to revenues is crucial component of my own evaluation process, and early signs of traction can be a great indicator of future success.

This could be in the form of existing revenue, user growth, or strategic partnerships. It's not just about the numbers but about momentum and the ability to sustain it. Seeing that a startup has already started making headway gives me confidence in its potential.

Once I've found a promising startup, securing myself as an investor is the next critical step. Due diligence is non-negotiable. I dig into the company’s financials, business model, market analysis, and the backgrounds of the founders. Verifying everything the founders have claimed and getting a realistic picture of the risks involved is essential.

Valuation is another important aspect. I stay wary of sky-high valuations, especially in early-stage startups. A fair valuation that reflects the current state of the business and its potential is crucial. It's better to own a smaller piece of a big pie than a big piece of nothing!

The terms and conditions of the investment are equally important. Paying close attention to the type of shares, anti-dilution provisions, liquidation preferences, and investor rights ensures that my interests are protected. Negotiating terms that safeguard my investment is a step I never skip, and equally ensures that the founder themselves understands the engagement we have as often an angel investment will be made into a first time founder.

I prefer to stay actively involved with the companies I invest in. I provide support and guidance, resources where possible and ensure the founder has someone at the end of the phone when they need them. Not only does it help the company succeed but it also keeps me in the loop regarding their progress and opportunities. Early stage founders can be simply terrible at reporting to their investors.

For those new to angel investing or without any experience in the investment space, my advice is to start by educating yourself. There are numerous resources available – books, online courses, and even angel investor networks that offer valuable insights and mentorship. Joining an angel investor group can also be beneficial, as it would also provide access to a network of experienced investors and investment opportunities that you might not find on your own.

Focus your efforts on understanding the basics of investing and the startup ecosystem. Start small and diversify your investments to spread the risk. Remember, angel investing is high-risk, and there are never any guarantees. It’s entirely possible to lose your money, so only invest what you can afford to lose. Its not for the faint-hearted, but it can be incredibly rewarding. It’s about more than just money – it’s about being part of something bigger, helping innovative ideas come to life, and supporting entrepreneurs on their journey. By focusing on the right factors, doing thorough due diligence, securing your interests, and planning your exit, you can navigate the world of angel investing with confidence.

So, whether you’re a seasoned investor or just starting out, remember: aim high, stay informed, and enjoy the ride. And who knows? You might just find the next big thing!

// Melissa O’Neill, Co-founder and CEO of Wayfinders