Strategies for Maximizing Returns as an Angel Investor
You can barely afford to live comfortably in today’s world when relying on a single income source. To this end, it is prudent to get a way of earning an extra dollar without having to abandon your primary job. Some of the highest-paying prospects nowadays lie in real estate investments.
Here, people buy rental properties, pass them on to a property management company, and sit back waiting for regular income. Without Townsville-based conveyancing lawyers, nonetheless, many people have made significant mistakes in property investing and been left counting losses.
Other than buying property, the business lawyers in your choice law firm might recommend becoming an angel investor. In angel investing, you will inject capital into a small company in exchange for high returns, along with a percentage ownership of the business.
The name “angel” in this investment plan might fool you into believing that you are helping people or benefiting society. While these are commendable motivations, you should still ensure that your returns in angel investing surpass what you can get if you invest in other assets.
Here are some strategies for maximizing your profits in this investment plan.
The leading source of issues in angel investments is control that is not as clearly defined. You should be clear about the level of control you have in a company’s decision making after your investment. This way, you will safeguard your investment and negate the risk of changing goalposts with the company after establishing a relationship.
You might assume that angel investment is fail-safe and the company has your best interests at heart. Though the above strategies will guarantee you maximum profits, the company you invest in might include several elements in your contract that will mar your dream. A business lawyer is thus essential to negotiate your deal and guarantee optimal terms.
1. Invest in companies at a low valuation.
Most angel investors opt for startups. This is because when you buy into a company at its low valuation, you stand to earn more when it sells later. If for instance, you invest in a company valued at $1 million, you can make ten times your investment when it sells for $10 million. If however, you invest in the same company when its value if $5 million, you only double your investment.2. Pick businesses with an increased likelihood of exit.
You stand to maximize your returns by investing in companies that will go public or be sold within 5–10 years on average. Some industries, like the e-commerce and computer software ones, have high odds of IPO or acquisition compared to others. Focusing on these industries will thus almost guarantee your returns.3. Invest your time and knowledge.
Remember that you will typically invest in startups as an angel investor. Do not just focus on your money and hope the employees multiply it. Use your knowledge and time to help the employees maximize the company’s value and penetrate their markets. Guide them to make the right choices and help them network with others in the industry. Angel investing might not need as much of your time and input but do not take a completely hands-off approach to it.4. Establish your business relationship limits.
The leading source of issues in angel investments is control that is not as clearly defined. You should be clear about the level of control you have in a company’s decision making after your investment. This way, you will safeguard your investment and negate the risk of changing goalposts with the company after establishing a relationship.
You might assume that angel investment is fail-safe and the company has your best interests at heart. Though the above strategies will guarantee you maximum profits, the company you invest in might include several elements in your contract that will mar your dream. A business lawyer is thus essential to negotiate your deal and guarantee optimal terms.