Angel investing is the round of investing that comes before a venture capital firm comes in to fund a private startup. Angel investing can be satisfying when you pick only a select few private companies to support and reap larger returns than even venture capitalists, who invest when the startup is more appreciated by competing investors. Angel investing can be particularly successful if you have an extrovert on your team who hears about numerous startups and a skeptic who can ask the right questions to ferret out the best companies to back.
Invest when you have an information advantage or a liquidity advantage. There should be some advantage that you're exploiting that gives you access to the startup's stock at a large discount with little competition from other investors.
Listen to a company's pitch several times to make sure you understand it. You won't think of all the right questions to ask immediately. Don't miss investment opportunities--or fall for a dud--for fear you're asking a question too late.
Invest in the kind of venture you have been waiting years for. The years of pondering will give you a risk-evaluation edge over others hearing about the idea for the first time.
Be quick to recognize opportunities when you hear about them. To do this, be both skeptical and open-minded at the same time, asking penetrating questions of the startup's founders.
Increase your "deal flow" by advertising in academic hotbeds (for example, Cambridge or Berkeley) and by building a good track record as an angel investor. Backing one or two companies will lead to startup referrals coming your way, especially if the companies were happy with you.
Protect your share of the company from dilution in subsequent rounds of funding by including provisions in your investment agreement that allow you to contribute to further rounds of funding to preserve your percentage.
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