Any form of startup investing follows the power law principle. Only a small portion of the startups you invest in will give you returns while majority of them may fail. As per estimates, nearly 90% of the startups fail. To simplify this, nearly 80-90% of the returns will come from 20% or less number of deals.
Unlike public markets investing which has plentiful of data, there is data asymmetry in private market investing. This largely owing to the fact that many early stage startups have limited or no quantifiable data or discernible trends available about them given their stage of maturity. Angel investing is a mix of art and science hence investing in startups will depend on your capital availability, your understanding of the ecosystem and your risk appetite.
To begin with, you dont need large sums of money to angel invest. You can start investing as little as Rs 50,000 to begin with. To kickstart the same you can evaluate your networks, friends, connections, alumni groups and more who are already angel investing. As your risk appetite increases you can slowly increase your investments by 10% every year.
However do keep in mind that owing to the risk profile you should earmark only 5%-10% of your savings to kickstart angel investing. Angel investing is a long term commitment hence unless you invest in 5 plus startups you will be unable to detect trends and patterns to further hone your skills as an angel investor.
When investing in smaller cheque sizes, its important to also focus on the skills and expertise you can lend to the founders. This will enable you to convince founders to accept a small cheque size as you will be able to help the founders in other areas such as marketing, finance, growth or more where they may need your help to scale. Angel investing is never about pursuing returns but bringing value added capital to the table. One shouldnt angel invest simply to garner returns but to actually build deeper relationships that compounds over the years. Angel investing is not a zero sum game hence irrespective of the amount you invest you can punch above your weight if you are willing to extend yourself and assist founders in every step of the way you can.
Invest in people not just the idea. This should be the cornerstone in your journey as an angel investor.