6 Important Tips for First-Time Startup Investors (Mashable)

Bill Clark is the CEO of Microventures, a securities broker/dealer that uses crowdfunding to allow investors to invest between $1,000 to $10,000 in startups online. You can follow him on twitter @austinbillc. An angel investor used to be defined as someone with a high net worth. They typically have more than $1 million and privately invest money in startup businesses that are seeking capital. The SEC restricts investing in private deals to mostly accredited investors. I say mostly because there are some opportunities for non-accredited investors to participate on a limited basis. The definition of an accredited investor in the U.S. is a person who either has a net worth (excluding a primary residence) of $1 million, an income of $200,000 per year for the last two years, or $300,000 in household income per year for the last two years.

[More from Mashable: Shopkick & The CW Strike Deal To Deliver Rewards for Watching TV Ads [VIDEO]]

Angel investing has gained a lot of popularity despite anxieties over the bubble bursting. You need to understand what you are getting into before making that first investment. The general rule is that you shouldn’t invest more than 10% of your net worth, since startups can be risky. Investments typically range from $25K to $250K, but with startups needing less capital to launch these days, the amounts are shrinking.

Aside from the accredited investor rule, you don’t need to have any additional qualifications to become an angel, but you do need to make sure you understand the following concepts.

[More from Mashable: Plizy Recommends Videos To Watch on Your iPad [INVITES]]

Make sure you have access to your capital so that when you find a great startup you have the money readily accessible to invest. You don’t want to have to wait to liquidate a CD or a stock, or try to get money out of your IRA and watch a great opportunity pass you by. Also, you don’t want to waste the startup’s time if you can’t get access to your funds. You can develop a bad reputation if you start committing and backing out of deals at the last minute. The startup community is a huge network, and word travels fast if you are unpleasant to deal with. The majority of startups fail. As long as you understand the investment may be risky and you might not get your investment back, then you are at least being realistic when thinking about investing. If you stress too much while writing the check, it means it may not be the right time for you. Given the high rate at which startups fail, it's wise to spread your risk by investing in more than one. The goal is for a few successful startups to more than pay for the ones that fail. Ron Conway has made this “Spray and Pray” strategy successful. The thought is that you invest in a lot of deals early on and then narrow your focus in on those that are more successful and require additional funding. You need to realize that even if your startup is successful, it could take five or more years to get your investment back. The most common way to get your money out of a private company is a liquidity event, such as a public offering or an acquisition by another company. Those events take time, sometimes even up to 10 years. Be patient.

In the past few years there have been additional opportunities for investors to sell off shares. For example, Groupon raised almost $1 billion, some of which was to allow shareholder liquidity. Also, new platforms like SecondMarket and Sharespost help with liquidity by linking your company shares with an interested buyer.

Every startup should have a clear exit strategy that they can share with investors. They should have a list of competitors who might be interested in an acquisition or the plan could be to go public like LinkedIn or Facebook. If you're not clear on how the startup is going to exit, or they can’t give you a list of potential competitors, you should think twice about investing. While you're assessing a startup for investment, the startup is probably looking at what you can bring to the table besides a check. A big part of angel investing is helping out the companies you invest in by either mentoring them or connecting them to additional people who can help them succeed. In the end, investing isn't just about the money. Helping an entrepreneur who is trying to build a great company can be extremely rewarding. You are also surrounded by smart, creative people who come up with really interesting ideas. The downside is that it never gets any easier saying no to someone who is passionate about a project.

Have you thought about becoming an angel investor? Share your experiences in the comments below.

Image courtesy of Flickr, wonderwebby

This story originally published on Mashable here.

Yahoo! News

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

7 Resources for Startup Investment Opportunities (Mashable)

Bill Clark is the CEO of Microventures, a securities broker/dealer that uses crowdfunding to allow investors to invest between $1,000 to $10,000 in startups online. You can follow him on twitter @austinbillc. In the past, it was more difficult to invest in startups because most deals were regional. If you didn’t live in the Bay Area, you didn’t hear about the startups that were looking for funding. Now, thanks to the Internet, incubators, demo days, and blogs that cover the scene, access to startup funding opportunities are no longer restricted to those who are physically in the room. It’s all about knowing how and where to look for the next big idea.

[More from Mashable: 5 Tips for Building Vibrant Branded Online Communities]

So with all this access, how can you get in and get the word on the right opportunity? Good deal flow is important, and can separate the good investors from the bad ones. If you don’t have access to the best deals, how can you compete and get a good rate of return? Anyone can find businesses that need capital, but what you are looking for are startups that have not been picked over yet. This is when networking and relationships can help you out.

Here are some places to get you started.

[More from Mashable: The Worst Startup in the World [VIDEO]]

Every major city has at least one angel group that you can join. Sometimes it costs money to join, and their investing philosophy might be different than yours, so you should understand it before you sign on. The Angel Network in Austin focuses on companies in Central Texas, so if you are looking for more national exposure, it probably isn’t right for you. But they do get very good deal flow, so you will have some good opportunities to invest.

Once you become a member, the group will meet with startups on a monthly basis and provide you the option to invest in their ideas. One additional benefit of an Angel Network is that the due diligence on a startup is done as a group. If you're just getting into angel investment, this guidance can be extremely helpful.

If you are a member of LinkedIn you can join groups like the Deal Flow Network, the Angel Investor Group or other similar groups that will itemize many startups that are looking for capital. This is also a good opportunity to build your online network by linking directly to people in those groups.

I have built some great online relationships with people through LinkedIn and we share business opportunities and help each other out. I am constantly amazed by the generosity of the people in my network by giving advice or answering questions I might have on a particular investment or topic.

Attend entrepreneur events in your area. This is where you get to meet the new startups in town and hear about their businesses in an informal setting. Angel investors also hang out at these events, and they can direct you to other deals. Angels often like to invest together, so connecting with one can lead to additional opportunities.

Crowdfunding has started to gain popularity over the last year as a way to fund great ideas. The idea is for many people to contribute to an idea to get it funded. If you need capital to fund your idea you could post your project and see if people are interested.

Kickstarter and Indiegogo are two sites that are geared toward creative arts and entertainment projects like independent movies or books. Supporting these sites will not get you equity in the business, but it could give you a producer credit and a copy of the final results.

There are a few websites that allow investors the opportunity to look at startups that are requesting capital. Once you find a business you are interested, in you will need to contact the business and work with them on the terms sheet. Make sure your lawyer looks over the details and always do your own due diligence before investing. The two biggest sites in this area are Go Big Network and Fundingpost. They have a diverse range of opportunities, and combing through them is sometimes a challenge, since any startup can list if they pay the fee. Still, there is gold to be found.

There are great incubator programs out there like Y Combinator, TechStars, 500 Startups, AngelPad and Capital Factory. New ones are popping up every few months. These programs work with selected startups over the course of about three months and then at the end of the program they host a demo day where the startups present their businesses and seek capital. This is a good place to meet entrepreneurs, other angels, and of course, invest in the startups that are presenting.

Did you know that you can invest in private companies like Facebook, Twitter and Zynga online? In the past these opportunities did not exist, but recently, two websites have been posting offers to sell shares from insiders whose shares have vested. You can go to

image courtesy of Flickr, thinkpanama

This story originally published on Mashable here.

Yahoo! News

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.