You Can Now Angel Invest a $100 — But Should You?

Toni Koraza

Retail venture capital is a hardcore market for retail investors.

If you have an extra $100 and don’t want to put it towards savings, and you’re not much of a party-animal or WallStreetBets chap, then maybe Angel Investing could tickle your fancy.

I prefer my tax-free stock accounts with a dash of crypto when I’m feeling quirky. But funding venture companies sounds like a dream come true — because of adventure, why else?

One successful venture can change the world, save your life and make you rich — at least the legend goes. Today, with platforms such as StartEngine, investors can buy pre-IPO equity in startups with big ideas.

But should you? That’s a real question.

After 9 years of investing in stock markets

I finally feel that I know what’s left and what’s right in the financial markets, and subsequently, how to build wealth through acquiring assets.

The age-old wealth-building formula seems to work just fine. Buy low and don’t sell [or sell high]. Find companies that will probably stay relevant for the next 100 years, like drinking-water suppliers and waste management technologies (sexy portfolios, I know). Invest the retirement money in index funds and rental property. Buy crypto with recurring standing orders of your pocket change.

Investor 101 class dismissed. You’re good to go.

It took me 9 years to get here. I’m not losing money. I’m not gambling, and the value gradually keeps rising over new dope slopes. The keyword here is gradual, although dope slopes are also fun.

When it comes to venture capital, most startups look like they have a stellar future. Just tab over to StartEngine, and you’ll find scores of investment potential.

  • Revenue potential rolls in tens of billions? Check.
  • Award-winning team and excellent promo campaign? Check.
  • Engineers from Tesla, marketing from Coca-Cola, and capital from, well, from you and I? Check. Check. Check.
What could go wrong?
Everything.
How often does everything go wrong?
Most of the time.
Why is this time different?
It’s not.
Should we invest?
Hmm.

What’s your risk appetite?

Risk is something you can take, fine-tune and deploy.

When it comes to business, risk is a tool. More risk usually (but not always) offers more reward and a higher chance of loss. It’s a double-edged sword that fiercely cuts both ways. Calculating how much you can lose and win is a crucial step for investors.

Buying Bitcoin at $12 produced the first crypto billionaires. But investing in Dutch Tulips tanked the global economy. The point of risk is that you never really know the outcome. Take only what as you can absorb without destroying your whole business and life.

Surviving is better than winning. You can win many times in a row, but you only need one big fiasco to default on your mortgage. The bottom is a cold place. Nobody survives down there.

Once you lost it all, it’s gone.

Never risk everything if you don’t desperately need to. Placing your house on a roulette table against the odds is not a smart investment strategy. It’s a gamble. And gambling is entertainment, not investment.

I digress.

Besides stocks, ETFs, Index Funds, crypto, options, and direct investment, you’ve probably heard about Angel Investing — the mother of all [mis]calculated risk.

What is Retail Angel Investing?

Angel Investor is an individual who buys equity in a company before it’s publicly traded on stock exchanges. Big investors and household names can sometimes offer guidance and sit on boards of these companies, making sure their investment has a future.

Until recently, pre-IPO equity investing has been reserved for the top crust of the financial world, tech insiders, and the rich.

Enter, Retail Angels. I made up the term on the spot, but it seems fitting. The more commonly used phrase would be something like “equity crowdfunding.” However you choose to put it, it’s still a new area, and the board is still out there on terminology.

Equity crowdfunding or Retail Angel investing is different from Kickstarter, Indiegogo, and other crowdfunding options. You’re not buying a product in a reward system but a piece of the company (usually shares).

Platforms like StartEngine provide retail investors with you an opportunity to buy shares of an early-stage business. Two reasons for doing this:

1. You’re a die-hard fan and want to support the business

2. Cash in your shares on a much later date

Maybe both? You can be a fanboy investor. Nothing stops you from being both. This marriage can be a good thing if you can divorce your feelings.

However, it’s risky. Never hold to a single idea too tightly.

Most (90%) startups fail, but those who don’t can change the world.

High-net-worth individuals learn how to escape a sinking ship before it hits an iceberg. Also, learn how to stay on the ship when it’s going places.

Should you invest in startups?

The risk seems to sit above investing in crypto. Angel investing has a glaring problem for everyday individuals. Investors have to part ways with their money for years and often for good.

You can’t sell pre-IPO shares on a regular stock exchange. And the equity you now own can become insolvent mud, turning into quicksand.

Venture Capitalist (VCs) have a simple balance sheet. You only need one or two home runs to make the whole thing worth your while, but you also need a fat balance sheet full of dry powder.

The path to an investor’s wealth generally has three aspects.

  1. Own.
  2. Diversify.
  3. Control cashflows.

Own equity because it can grow money while you sleep. People don’t become wealthy working a day job. They do so through ownership of equity that increases in value over time — either a business, land, or shares.

Equity is assets that can make a return on your money. Buying a car or a phone is not a money-making asset, and some don’t agree that depreciating assets are even assets.

In this case, we’re talking about shares in early-stage startups. You’re buying a piece of ownership in the company at its inception. Virtually, you’re buying a bag stuffed with ideas and promises.

Think what would happen if you bought $50,000 of Facebook equity in 2004.

You’d be a billionaire today if you’d kept the stock. That’s why it’s attractive for investors that have dry powder.

How do Retail Angles cash in?

You can exit the investment in at least three traditional ways. If you’re creative, then the sky is the limit. But here are the basics.

First, exit is possible through acquisition. When another company buys your startup (because it’s partially yours now. You’re a shareholder.), you can cash in with the big boys. Enterprises often acquire smaller competitors and absorb their products, features or completely shut them down in some cases.

Second, retail angels can wait for the initial public offering (IPO). Most big angels investors cash out this way too. Suppose you reach a successful IPO and own a considerable stake from your early-phase equity. In that case, you can effectively become a millionaire overnight (after years of being insolvent, but it does happen overnight). This is how people become super-rich.

Third, your startup can quote Regulation A+ and Regulation Crowdfunding stocks for alternative trading systems (ATS). You can then sell the stock to another investor for a better price.

You could also sell the share directly to another person in a private meeting.

Invest, wait, and hope for an IPO or acquisition

Retail Angels have to stay patient and play with money they can risk losing.

Even though you may own a part of the equity and piece of the action, you still can’t affect the day-to-day operations with a few hundred bucks. Instead, your power comes from recognizing the right opportunity to sell and timing the exit.

Time is both your friend and enemy in a retail venture. If you wait long enough, you can see your stake gradually becoming worthless. But if you also wait long enough, you can earn millions this way.

These contracting statements sum up the world of Angel Retails.

Should you invest that $100?

Maybe. If you can, risk losing it.

Disclaimer: This story does not constitute investment advice. Please consider this article as financial entertainment and informative public discourse. Don’t invest your money into risky assets after reading one blog post. Instead, make your mind through thorough research and self-determination. Don’t forget that your capital is at risk with every investment, especially with venture funding.

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