Q&A Series 2 on Angel Investing: Angels Who Contribute More Than Cash

  1. Has there been a particularly reliable or steady sector where private companies have a better chance of succeeding?

    There is no free lunch especially in private market investing. There is a positive correlation between risk and return in most markets and investments. Hence, the reliable and steady sectors will generally have lower returns.

  2. What are the particular risk-reward scenarios that investors will want to look at in advance of putting down the first dollar?

    As I mentioned above, investors will demand higher returns (through a lower valuation) as they perceive greater risk (e.g. earlier stages of development). In order to be a first dollar investor in the company, typically the founder(s) is a friend or family member. At the earliest stage, the idea isn’t sufficiently formed into a company for unrelated angel or family office investors to get involved. At the time that unrelated investors are ready to invest typically there is a core management team, a business plan or a thorough investor deck, a product or service in beta or and the company is getting ready for commercial launch. At that stage investors want a 20-40% return on investment and expect to be holding that equity for 5-10 year in most cases.

  3. Is there a place for this in the creatively constructed portfolio? Or is investing in a private company really a world unto itself?
    1. Private company investing is entirely different than public market investing or placing money with third party managers. Private company investing is much more about understanding management teams, business strategy and business building. Successful private equity investors generally need to get their hands dirty, to engage directly with management teams to discern great potential companies and managers and work with them to succeed.

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