If you’ve been in the investing world for long, you’ve no doubt heard some of the success stories associated with investing in seed-stage startups. For example, Timothy Springer’s early investment in Moderna earned him a 17,000% return (no, that’s not a typo).
You’re an experienced investor who knows their way around the stock market. Maybe you’ve dabbled in real estate or collectibles as well. But now, you want to explore the potentially lucrative and exciting world of becoming an angel investor by starting your own angel investment group. How can you get started?
This post will provide you with a step-by-step guide on how to start an angel investment group. After reading, you’ll have the information you need to start your angel investment journey.
What is an Angel Investment Group?
Before starting our list of the steps you can take to start your angel investment group, let’s discuss angel investing in more detail.
What is an angel investor? An angel investor is typically a wealthy individual or group who provides capital for a startup that needs a quick injection of capital. The investor typically receives equity in return for supplying those initial funds.
The main benefit of being an angel investor is your ROI. Most angel investors expect a 30% return on their initial investment. Being an angel investor also allows you to support projects and businesses you believe in, giving you the chance to help shape the future of a fledgling company.
The most significant disadvantage of angel investing is the barrier to entry. You must be an accredited investor, meaning your income must be two hundred thousand dollars or more a year for the past two years, or you must have a net worth of over one million dollars. Even if you form an angel investment group, the SEC requires that every group member is an accredited investor.
1. Find and Recruit Group Members
The first step on your journey to starting an angel investment group is to find and recruit the rest of your group members. If you’ve decided to start a group, you may already have partners in mind, but if not, you can mine your social circle.
Related Read: Should I Invest with Family & Friends?
Talk to friends and family members to find wealth-minded contacts and have the capital to become an accredited investor. If you’re worried about mixing money and personal relationships, have no fear: The rest of this post will walk you through how to do that safely and without causing emotional strife.
If you don’t have friends or family members who fit the bill, you can also join online communities to find other investors looking to team up for angel investment opportunities.
2. Create a Business Entity
Once you’ve identified the right partners and gotten them on board to invest together, you’ll want to create a business entity. Create an Operating Agreement to formalize your group and identify a group mission statement to ensure all members are aligned.
Alignment is vital at every stage of the group investment process. Before you begin investing with your angel investment group, you must ensure all group members understand and agree upon the budget, risk, timeline, and more.
Next, you’ll need to file an LLC to formalize your business entity. Operating through an LLC makes it simpler to coordinate with a group and helps limit your personal liability. You’ll also need to apply for an EIN and register for state and federal taxes.
3. Open a Business Bank Account
Step three to starting an angel investment group is to open a business bank account. You may be tempted to proceed with your investment without opening a business bank account, but we caution you against making that decision.
When you have a business bank account for your angel investment group, it’s simpler to pool capital with the other group members. Additionally, it makes it easier to protect your personal assets and keep them separate from the group’s investable capital. Lastly, operating through a business bank account simplifies taxes and accounting.
4. Obtain Angel Investment Group Insurance
Next, you’ll need to obtain insurance for your angel investment group. You can pursue several different types of insurance for your group, but many of them, like commercial property insurance, won’t apply.
The most common type of insurance you may want to pursue is General Liability Insurance (GLI). GLI covers your group from claims of bodily harm, property damage, or personal injuries like libel or slander.
5. Find the Right Opportunity
Once you have all the logistical pieces of the puzzle together, you’ll be ready to start finding an opportunity. For many groups, this may come before step one, as many groups form around pursuing a single deal or investment.
Our best advice for this step is to choose a start-up you believe in. Perhaps a friend or family member is starting a business, or perhaps you simply find a business that has a product or service you’d love to see take over the marketplace.
It’s also a good idea to invest in a start-up in an industry you or a group member have experience with. This know-how increases your chances of picking a winner and gaining a massive ROI on your investment.
The final step of starting your angel investment group is… repeat! Don’t stop at one start-up. Use some of your returns from your first investment together to roll into another… then another! You and your group members have already done the hard work aligning and formalizing your group—don’t let that go to waste!
You can use a tool like Tribevest to maintain alignment, streamline communication, pool capital, and more.
How to Start an Angel Investment Group the Tribevest Way
These six simple steps will help you start an angel investment group without tearing your hair out. Use Tribevest to organize and align your group to make things even easier.
You can use Tribevest to streamline group communication, structure your group, pool your capital, and even file your LLC through a simple platform.
Get started with our platform today to see how Tribevest can help you start your angel investment group with zero headaches!