5 Things Every Angel Investor Should Know About Startups

Angel investing offers the opportunity to support innovative companies at their earliest stages while potentially generating significant returns. However, it's crucial to approach this asset class with the right knowledge and expectations.

First, understand that most startups fail. Industry data suggests that roughly 90% of startups don't succeed. As an angel investor, you should expect that many of your investments won't return capital. The key is finding those few winners that can return multiples on your entire portfolio.

Due diligence is essential. Before investing, thoroughly evaluate the team, market opportunity, competitive landscape, and business model. The founding team is often the most critical factor—look for passionate, experienced founders who can execute on their vision.

Diversification matters in angel investing too. Rather than making one or two large bets, consider building a portfolio of 15-20+ investments. This increases your chances of having a winner in your portfolio.

Finally, be patient. Startup investments are illiquid and typically take 7-10 years to reach an exit. Make sure you're investing money you won't need access to for a long time.