What Angel Investing Can Do for You (and Your Bank Account)

You might not have thought much about angel investing before. A lot of people think it's "not for them."

But a lot of people haven't had the chance to find out how it really works. A quick Google search for "angel investing" will get you an overwhelming 36 million results - but it won't personally walk you through the process.

That's why I've been sharing stories and tips from my angel investing experience with you all. So you can get a real inside look at how it works - and how profitable it can be - and decide if it's right for you.

The truth is angel investing is one of the best and most reliable ways to make huge gains. On average, it can return double what you could make in stocks.

So today, I'm going to cover what angel investing really means - and how it can be so profitable.

Let's break it down...

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Angel Investing 101

First off, an angel investor is a person who sees the potential for greatness in an early-stage startup - think Steve Jobs in his garage long before Apple Inc. (NASDAQ: AAPL) grew into the trillion-dollar juggernaut it is today - and throws in that first real investment, or seed money, to help the business grow.

Keep in mind that this all happens before a company goes public. That means you're not going to be buying shares of it on the Nasdaq or the New York Stock Exchange.

Instead, you're going to be buying directly into the companies we talk about.

Typically, angel rounds vary in size, but they range anywhere from a few hundred grand to a few million to help get these starter companies off the ground.

But the beautiful part about angel investing - an aspect that I personally love - is that you're able to participate in tons of different companies by just writing small checks without having to run the business.

The truth is being there day to day is grueling - it's a grind. I believe that being an entrepreneur is the hardest part, and while being an investor and writing checks isn't necessarily easy, either, it's certainly a much easier lifestyle in comparison to having to grind it out every single day.

So bottom line, angel investing is a simple concept of writing small amounts of checks to a handful of companies right when they start off.

Now, compared to traditional companies, like the ones you find in the stock market, angel investing can lose you a lot of money because many of these startup companies will go down to zero. However, angel investing can also potentially make you much more money.

If, let's say, you were one of the first check-writers for Facebook Inc. (NASDAQ: FB) or Uber Inc. (NYSE: UBER), it would've made you a multimillionaire right now - even if you put in something small like $10,000. The returns are much higher, and they tend to beat the S&P 500.

Another difference compared to the stock market is that with angel investing, you'll typically get big wins, a lot of losses, and some that do just OK.

But the key thing to remember is that if you pick the right investments, the wins - even if you only have one or two - could make up for all your losses and then some.

And that's been my personal experience. I've invested in a lot of companies, some of which have failed, but the ones that have done well more than made up for all the ones that failed - plus much more, by leaps and bounds.

Another important thing to keep in mind is that you're not investing in the company in its current state - you're investing in what the company will be in the future. That's why you want to go after huge, revolutionary ideas that have the potential to change the world.

Let's say you get into a company that has a valuation of $6 million, and it's currently making nothing. If its goal is to send people to space to live and it succeeds in that goal, then it's no longer a million-dollar company - it's a multibillion-dollar company. And potentially even a trillion-dollar idea.

The Perks of Being an Angel Investor

Now that you have a better idea of how angel investor works, let's talk about the advantages.

As I explained earlier, angel investors get in way before typical investors, and that means two big things for you:

  1. You'll have a chance at way bigger profits than someone who waited to buy the stock when the company went public. In fact, while everyone else is flooding in, we'll be making our exit and cashing out.
  2. You'll have the opportunity to make real changes and have real impact as a company develops. Imagine buying shares in Tesla Inc. (NASDAQ: TSLA) right now. Do you think Elon Musk is going to invite you to the board room? No way. But as an angel, you have a direct line to the founder - you have influence.

I recently explained how up until 2016, the world of angel investing was reserved for Silicon Valley's high and mighty... aside from needing all the intimate connections and tight-knit network of CEOs, venture capitalists, and billionaires, you also needed to be an accredited investor. Long story short, you needed a net worth over $1 million to be an angel.

But times have changed. Today, you can get in the game with just a few hundred dollars. Of course, you can invest much more, too - it's all about what you're comfortable with.

It's all thanks to Title III of the Jumpstart Our Business Startups (JOBS) Act, which was signed into law in 2012 and went into effect on May 16, 2016. Title III allows anyone to invest in startups, regardless of income or net worth. There's no minimum salary requirement to get started.

There are still rules about how much you're allowed to invest each year based on your income, because angel investing can be a bit tricky.

But not to worry - that's why you have me to guide you every step of the way, which I do regularly in my free Startup Investor newsletter.

Dealroom Update: Your Private Password Is Now Fully up to Date

As we speak, the Dealroom is filling up - faster than we'd ever anticipated. But Neil went out of his way to make sure you're on the inside. In fact, your invitation to the Private Dealroom is coupled by an exclusive password - ANGELDEALS. To access the full briefing, just go here.

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