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How to Find the Best Startup Companies to Invest In
Finding the best startup companies to invest in is crucial to your success as an angel investor.
Pick the right investment, and you may just become the next Ram Shriram, whose estimated $100,000-$200,00 investment in Google turned into more than $3 billion by 2017.
But when researching angel investment opportunities, choosing the best startup companies to invest in may be tricky due to the risk involved. After all, research shows that about nine out of ten startups fizzle prior to achieving successful gains.
So how do you pick which angel investments to pursue?
Whether you want to invest in tech startups or other types of businesses, make the most of your angel investment opportunities by learning what you'll need to know when it comes to finding the best startups to invest in.
Steps to Finding Startup Companies to Invest In
There are a few steps to follow when it comes to investing in startups.
First, make sure you know how much you're able to invest. Secondly, select the niche market or industry in which you want to invest.
Next, consider whether you'd like to utilize any angel investing platforms. And lastly, identify the startup companies in which you'd like to invest.
Let's talk about how much money it takes to be an angel investor.
No. 1: Figure Out How Much You Can Invest
Traditional angel investing can take a significant amount of money.
Most angel investors put $25,000 to $100,000 into one investment. As mentioned earlier, about 90% of startups fall flat, meaning that most angel investments can do so as well.
That's why experts recommend investing in at least 10 startups. Understand the risks involved in that you may end up losing money on some of these initial investments, but rest assured that profits from at least one success may cover these losses and more.
If the typical low-level angel investment is $25,000, and you should invest in 10 startups, you'll need at least $250,000 to be an angel investor.
Additionally, most financial planners suggest for you to diversify your portfolio.
TIP: Spread your investment dollars around in other types of companies – not just startups.
To first answer the question of how to invest in startups, you'll need to determine how much money you're allocating to angel investing.
Are you planning to invest at least $250,000? If so, that's fantastic!
If not, you can still be an angel investor with the Angels & Entrepreneurs Network. The Angels & Entrepreneurs Network is an angel investing platform that enables you to be an angel investor for less money than traditional angel investing.
We'll cover angel investing platforms more in a second.
Right now, let's proceed with the second step of finding startup companies to invest in.
No. 2: Pick Your Niche
As an angel investor, you'll want to put your investment dollars where they're more likely to produce a positive return.
An essential way to do this is by investing in a niche market or industry that you know well or are passionate about.
Investing in an industry that you understand means you're better equipped to make wise investment decisions. You'll be able to review potential deals through the scope of your knowledge and expertise.
Plus, you'll be interested and more invested (pun intended) in the startups in which you've invested your money into.
If you're not intrigued by the work the companies you invest in do, then you may not be that engaged of an investor. This could lead to inadequate investment decisions as well as ineffective support and guidance for your startup's leaders as they run the company.
One way to pick the niche in which to invest is to think about your background, interests, and expertise.
Are there industries you've worked in that you've enjoyed throughout your career? Is there a market or type of company you are passionate about or understand well?
Another way to choose your niche is to consider a cause that you have an interest in supporting.
For example, would you like to support women or minority entrepreneurs? Perhaps you'd like to invest in startups fighting climate change or working to cure or treat a particular health condition or disease?
Think carefully about the industry and niche in which you want to invest.
Once you've answered these questions, you're ready to consider angel investing platforms.
No. 3: Review Angel Investing Platforms
Angel investing platforms are a simpler way to invest in startup companies.
There are a few online platforms that allow you to find startup companies to invest in.
As previously mentioned, one such platform is the Angels & Entrepreneurs Network.
Founded in 2019, the Angels & Entrepreneurs Network allows you to invest in startups using crowdfunding. This platform enables you to be an angel investor for as little as a few hundred dollars.
Another angel investing platform using crowdfunding is Wefunder. Through Wefunder, you can combine your small investments with those from other investors to fund startups.
AngelList is one of the angel investing platforms geared toward investors willing and able to spend a little more money.
This platform is available for angel investor companies ranging from early- to late-stage startups – and investments on AngelList start at $1,000.
Moreover, these angel investing platforms help you find startup companies to invest in.
But how do you pick the best deals? Let's find out.
No. 4: How to Invest in Startups: Picking the Right Deal
Selecting the right startup companies to invest in can feel a bit overwhelming at first, but this feeling is easily overcome with a positive mindset and by following a few essential steps!
When evaluating potential investments, there are a few essential steps that are commonly referred to as the three C's of angel investing:
- Conduct your research.
- Consider the team.
- Complete your analysis.
When analyzing a startup company, begin by making sure you understand the business' industry and performance.
Some questions to consider include: Who are its target customers? What's the size of the market? How has the company performed so far? (Review its performance trends.) Does it have existing customers? How much is it spending to acquire new customers? Is it currently making any money?
Next, you'll want to look at who is running the company.
Examine the current leadership team's experience and expertise within their business's industry. Review their goals and determine whether they are realistic and achievable with regard to the company's proposed growth potential. How do you think they'll respond if the company needs to pivot or quickly adapt to recent market changes?
Lastly, it is recommended to conduct a full analysis before deciding whether or not to invest. Then, ask yourself if the investment is right for you by considering the following:
Are you passionate about the issue that the startup is addressing or solving? How well do you know the business's industry, and how willing are you to learn more about it? How confident do you feel about the company's goals, KPIs, and growth potential?
Your answers to these questions play an integral role in determining how to invest in startups.
Now, let's explore some startup companies in which you may consider being an investor.
Some Startup Companies to Invest In
- Calm: With more than 36 million downloads and growing, Calm is the world's most-used meditation and sleep mobile application. The app burst on the scene in 2017, winning Apple's iPhone App of the Year award, and the company has raised $115 million in angel funding so far.
- Petal: Petal is a financial technology company helping people with little or no credit history secure a credit card. Most of its customers are Millennials or Gen Z. Petal's last fundraising round in September 2019 valued the business at $2.6 billion.
- Airtable: Airtable is a software company valued at $1 billion. The San Francisco–based startup raised nearly $171 million and counts among its customers Netflix, Expedia, and BuzzFeed.
Learn Even More About How to Invest in Startups