10 reasons to become an angel investor (and the risks)

Want to invest your money in a way that not only has the potential for huge returns, but also makes a positive impact?

Angel investing can help bring transformative ideas to life, create jobs, fuel the economy, and much more.

Your investment plays a role in shaping the future of industries, individuals and communities. It can be a hugely meaningful and rewarding pursuit. Here’s ten reasons to try it…

What is angel investing?

In case you’re not sure, an angel investor is someone who invests their personal money into startups in exchange for an equity stake in the company. They take a vested interest in helping the startup thrive and often give expertise, access to their professional network and mentorship too.

Anyone can be an angel investor. How involved you are, and how much you invest is up to you.

First, know the risks

Angel investing is risky. While you can make your money back exponentially, you can lose it too. Don’t invest money you’re not prepared to lose and always consult a financial advisor before making investment decisions.

Now you know the risks, on to the rewards…

👨‍🔬1. Get involved in exciting industries

Want to be a part of cutting-edge industries that excite you? Angel investing is a great way to get involved with things you’re passionate about. There’s a lot to explore from AI to renewable energy, healthtech, food, drink and everything in between.

This is your chance to pursue your passions and get a front-row seat to the development of groundbreaking products and services that could shape the future.

📈 2. Diversify your investment portfolio

Becoming an angel investor allows you to diversify your investment portfolio beyond traditional assets like stocks and bonds. This helps you to:

Reduce risk – you can minimise losses by spreading your investments across various asset classes (eg stocks, bonds, real estate, startups).

Optimise returns – you can balance high-risk and low-risk, and capture opportunities across different markets to maximise return opportunity.

Protect against market cycles – investing in multiple sectors helps to reduce the impact of a downturn in a specific industry on your overall portfolio.

By investing in early-stage companies, you gain exposure to a broad range of industries and markets, which can help spread risk and potentially increase your overall returns. This diversification can really help during periods of market volatility as the performance of startups may not be directly correlated with the broader economy.

🪙 3. Receive tax relief benefits

The UK government offers generous tax reliefs to angel investors through the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).

These schemes provide income tax relief, capital gains tax exemptions and loss relief on investments, which significantly reduces the financial risk involved.

This tax-efficient approach makes angel investing more attractive and accessible, as it not only maximises your potential returns but also minimises the downside should an investment not go as planned.

🔭 4. Support innovation and economic growth

Want to make an impact on innovation? By funding startups and small businesses, you’re directly supporting entrepreneurs who are developing new technologies, products and services. Your investment can help bring groundbreaking ideas to market, create jobs and stimulate economic activity, ultimately fostering a more dynamic and competitive economy.

👩‍💼5. Build a strong network

Angel investing is a great way to connect with brilliant and inspiring people. You can build a strong and influential network of entrepreneurs, fellow investors, and industry experts. This can help you identify new investment opportunities, share knowledge and collaborate on ventures.

Plus, being part of a community of like-minded people can give you support and inspiration to help you stay informed and engaged in the latest trends and developments in the startup ecosystem.

💷 6. Make a significant ROI if the company is successful

Obviously one of the main reasons people angel invest is to make money. You can get huge returns on investment (ROI) if you do your research, diversify and make informed decisions.

If a company you invest in becomes successful, the returns can often surpass those from more traditional investments. You could get back anywhere between 5x to 50x+ the amount you invest.

Early-stage companies have the potential for exponential growth and as an early investor, you stand to benefit from this growth. While not every investment will be a home run, the possibility of a big win makes angel investing exciting and you stand the chance of making some serious cash.

💪7. Become a mentor

As an angel investor, you have the unique opportunity to mentor and guide the entrepreneurs you invest in. Your experience, knowledge and connections can be invaluable to a startup, helping them navigate the challenges of scaling a business.

Mentoring can be incredibly rewarding as you contribute to the success of a company while also building lasting relationships with talented people.

💰8. Make independent investment decisions

Angel investing gives you the freedom to make independent investment decisions based on your personal criteria and interests. Unlike institutional investors, who may have to follow strict guidelines and mandates, you can choose the startups that resonate with you the most. This autonomy allows you to create a portfolio that reflects your values, goals and vision for the future.

🤓9. Develop your knowledge and skills

Angel investing gives you the chance to continuously develop your knowledge and skills. You’ll need to use critical thinking and understand various industries to:

• Evaluate startups
• Get on top of market trends
• Assess business models

Over time, this can enhance your expertise in investment strategies, entrepreneurship and innovation, making you a more informed and capable investor.

🤝10. Invest alongside others

You don’t have to do it alone. You can invest as a group of angel investors – called a syndicate. This gives you the advantage of pooling resources, knowledge and expertise with other experienced investors.

By joining a syndicate, you can participate in larger deals and diversify your investments across a broader range of startups. Syndicates can be a collaborative environment where members share due diligence, insights and industry connections. This reduces the risk and effort required for individual investments.

Investing alongside others allows you to learn from more seasoned investors and leverage their experience, making it an excellent option for both new and veteran angel investors.

Learn how to become an angel investor – for free

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