Unlock the Power of AngelList: Step-by-Step Guide for Investors
As an investor, you are likely always looking for ways to grow your wealth and secure your financial future. One way to do this is by investing in startups and early-stage companies. Certainly, this kind of investing should only be a very small part of one’s portfolio given the risk involved. However, we at the Flourish Fund believe that investing in startups that are solving the world’s problems can produce promising results. We operate our syndicate on AngelList, a platform that allows startups to raise capital and for investors to find unique investment opportunities. We’ve found exceptional opportunities on AngelList but it does require some experience to use it effectively.
So, what exactly is AngelList? It is a platform that connects startups with accredited investors, allowing them to raise capital through syndicates. Syndicates are groups of investors who pool their money together to invest in a specific startup, led by a syndicate leader who does the due diligence and makes the investment decisions on behalf of the group. By joining a syndicate, individual investors can access deals that may be otherwise out of reach and benefit from the expertise of the syndicate leader.
For startups, AngelList provides a wide network of potential investors and the ability to raise capital without the lengthy and costly process of traditional venture capital fundraising.
As an investor, you can use AngelList to find unique investment opportunities that may not be available through traditional channels. The platform has a company search function that allows you to filter by industry, location, and funding stage. You also can comb through syndicates to find investors with a unique investment thesis, rare access to high-quality deal flow, or an exceptional one-off opportunity.
However, it is important to remember that investing in startups carries risks and it is crucial to do your research and due diligence before making any investments. This includes reviewing the company’s financials (depending on what is available), market analysis, and management team. As with any other investment, there is the potential to follow the herd: chasing an industry, a leading investor, a management team, or another kind of theme. Almost always, these are the result of assuming the past will repeat into the future. Successful investing in the past AND especially the recent past (recency bias) often has a limited impact on the future. For example, a successful investor in B2B Software as a Service (SaaS) businesses may have benefited from the growth at any cost focus in this industry in an era of low interest/accommodative monetary policy. As a result, this same investing strategy may produce inferior returns if the environment is different.
One clear risk of investing on AngelList (or any other platform) is the inherent risk associated with investing in early-stage startups. Most startups fail, and even those that are successful may take longer to reach profitability and return on investment than more established companies. It is important to carefully evaluate the risk profile of each individual investment and consider the potential risks and rewards in the context of your overall portfolio.
Once you have identified a potential opportunity, ask yourself some key questions:
- Does this have the potential to be a venture-scale business with significant upside potential?
- Do I have confidence that this team can capture this opportunity given their experience and ability?
- Can they make it? Do they have the financial wherewithal to win?
In addition to researching individual investments, it is also important to consider portfolio management when investing on AngelList. Diversification is key in portfolio management, and investing in early-stage startups through AngelList can be a way to diversify your portfolio beyond traditional asset classes. Most syndicates allow investors to invest as little as $1k per investment. This allows investors to build a diversified portfolio across multiple vintages, industries, and syndicates. In addition, consider investing in companies that if they do succeed, if they do win, then is that something you would be proud of?
At the Flourish Fund, we invest in startups that add to human flourishing and strengthen communities. We think the world’s biggest problems can be solved by businesses that can design elegant solutions through sustainable and profitable business creation. We invest in education, health tech, workforce development, and community-oriented startups at the seed level. To join our syndicate, please see our page at AngelList or our website at Flourish Fund.
