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Angel Investor Checklist: 6 Factors to Consider Before You Invest

Updated: Dec 16, 2022

When it comes to angel investing, there are many factors to consider so you can make the best decision for you and the company you're looking to invest in. Sircular recently held our first Angel Investor Academy with seasoned panel of speakers and investors and discussed many of these important aspects, including the following six key considerations for angel investors who are considering new investment opportunities:

1. Define Your Risk Tolerance

All investments come with a degree of risk, which is why it's important to think about the level of risk you're comfortable with as an investor. Are you willing to take on a higher risk for the potential of a higher return? Or would you prefer a lower-risk investment with a more modest return? There's no right or wrong answer, but it's imperative that you know exactly what your tolerance level is before moving forward with any investment. Not only does this help you better plan for your investment, but it also ensures you’re clear on the goals and outcomes—so you’ll never be surprised by the results.

2. Know Your Investment Purpose

Why are you looking to invest in a company? What are your goals? Answering these questions can help narrow down the types of companies you should be investing in. For example, if your goal is to make a quick profit, then you'll likely want to invest in a company that is already generating revenue and showing solid growth potential. On the other hand, if you're more interested in making a difference or having a say in the direction of the company, you should look for companies that align with your personal values or that could benefit from your expertise. But the best senario would be to do both, investing in a profitable company and make a difference which aligns with your personal values.

3. Clearly Establish the Amount You Have to Invest

How much money do you have to invest? This is an important question to answer upfront because it will determine the number of shares you can buy or the percentage stake in the company you can own. It's also worth noting that most angel investors are expected to not only provide financial support but also offer their expertise and networks to help the company grow. So, even if you don't have a lot of money to invest, you may still be able to make an impactful contribution with your knowledge and contacts.

4. Determine Your Involvement Level

How involved do you want to be in the day-to-day operations of the company? Some angel investors prefer to have a passive approach, while others like being more active in the business’s strategic decisions. There are advantages to both options and, ultimately, it comes down to what works best for both you and the company.

5. Understand What’s Motivating Your Investment Desire

What is motivating you to become an angel investor? Are you in it for only financial gain? Or are there other factors at play? It's important to think about your investment motivations because these can guide your decisions as an investor. For example, if your primary motivation is financial gain, then you'll likely want to invest in companies that have strong growth potential and are already generating revenue. However, if your motivation is more philanthropic, then you should look for companies that align with your humanitarian aspirations and that are working on ground-breaking new technology or solutions.

6. Understand Your Deal Flow

Where do most of the deals come from that you're considering investing in? Are they introduced by other angels or venture capitalists? Or are you finding them yourself through online research or networking? It's important to think about your deal flow because it can give you insight into how easy or difficult it will be to find new opportunities and how competitive those opportunities may be.

For example, if most of the deals are coming from other angel investors or venture capitalists, then chances are there will be more competition for those deals—they also may require a larger financial commitment from investors. On the other hand, if you're finding most of the deals yourself through online research or networking, then there may be less competition and more room for negotiation on deal terms.

Being Prepared Is the Best Advantage

As an angel investor, there are several factors to consider before making an investment. These include your risk tolerance, investment goals, investment amount, desired level of involvement, motivation for investing, and deal flow source(s). By taking the time to carefully consider each of these factors upfront, you'll be in a better position to make informed decisions about which investments are right for both you and the company you're looking to invest in. You’ll also be primed to make significant and impactful gains.

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