Angel investing = is the term that conjures images of game-changing startups, astronomical returns, and a chance to play a part in the next big thing. Rarely it looks like this.

When you invest in a startup as an angel investor, you're effectively becoming a part of that company's story. You're not throwing money into a pot; you're buying a piece of a dream, a vision that may take years to materialize. It's about nurturing that vision, supporting the team behind it, and waiting for it to grow.

But before you dive headfirst into this exciting world, there's a key ingredient you need to bring to the table: Patience.

Why patience? Well, let's break it down.

The Importance of Patience in Angel Investing

You've probably heard the saying, "Patience is a virtue."

Well, in the world of angel investing, it's more than just a virtue – it's a necessity. Understanding this can help set balanced expectations.

Firstly, startups take time to grow

You're not investing in an established, blue-chip company with predictable quarterly earnings. Instead, you're planting a seed in fertile soil, nurturing it, and waiting for it to sprout into a mighty tree. That takes time - often, a lot of it.

“It takes time for your investment to pay off.

If you are here solely for the money and turning a quick profit, that’s not the right place to put your money.”

Says Yavor Gochev, Investment Manager at Innovation Capital

A startup can take over ten years to reach an exit event, such as an IPO or acquisition.

Secondly, the payoff can be unpredictable

Startups can have a roller coaster ride to success, with ups and downs that can test the nerves of even the most seasoned investors. Only 1 in 10 angel investments produce a positive return.

Patience and a long-term mindset can help you ride out these storms, keeping your focus on the potential upside.

Finally, due diligence is essential

Sure, it's possible to write a check on a whim, but if you're serious about angel investing, you'll need to delve deep into a company's business plan, market potential, and the strength of its team. That takes time - and patience.

So, if you're looking to dip your toes into the world of angel investing, start with a healthy dose of patience. No matter what happens in the market, it's the one investment guaranteed to pay off.

“When you are just making the first steps, focus on attracting the right startups to you.

Start learning from what others are doing and syndicate as much as possible. Start looking at your connections, and maximize your existing resources. Spend some time and follow the activity of multiple companies before making your first investments. After seeing +1000 startups, you’ll develop a mental framework to filter your best decision."

Says Malin Stefanescu, Romanian angel investor

Why Angel Investing Requires a Long-term Outlook

Startups are high-risk investments, and numerous factors like market conditions, competition, and management quality often determine their success. Thus, expecting overnight success would be a fallacy.

A good angel investor understands this and embraces the waiting game.

A Marathon, Not a Sprint

It's crucial to understand that returns don't often appear overnight. It's a long-term game where your investments could take years, even decades, to pay off. Hence, patience is your best friend.

“The VC game in the CEE region is precisely the opposite of the crypto market.

For instance, no short-term gains and only potentially long-term ones. If you want a chance to win, you can’t give up for at least a decade before seeing any results.”

Says Max Gurvits, Partner at Vitosha Venture Partners

The Art of Waiting

The most successful angel investors know the art of waiting. They understand that startups need time to grow, evolve, and succeed. Just as a seed needs time to grow into a fully bloomed flower, startups need time to mature into profitable ventures.

“I've always known it's a long-term game. I never expected a quick buck.

If you want to be on the less risky side, you can invest in a later stage. For diversification purposes, at a later stage, you’ll have a higher chance for an early exit.”

Says Galina Markova, Bulgarian angel investor.

4 Things to Consider Before Angel Investing

Angel investing is not a get-rich-quick scheme. It requires a thoughtful approach, a clear understanding of the market, and patience. Long-term thinking is vital in angel investing to allow for startups' potential growth and success over time.

Here are some key points to consider:

• Anticipate slow growth: Unlike the volatile stock market, startups grow slowly. You're betting on the company's long-term potential, not instant gains. Angel investors may only see returns on their investment for a few years, if at all.
• Do your homework: Thorough research is critical. Understand the business model, the market, and the team behind the startup. This knowledge will help you make informed decisions.
• Prepare for losses: Not all startups succeed. Be ready to face some losses and consider them part of your learning curve. The majority of startups fail within the first few years of operation.

"Patience, persistence, and perspiration make an unbeatable combination for success." - Napoleon Hill.

As Napoleon Hill so aptly put it, the magic recipe for success in any area of life often involves a healthy mix of patience, persistence, and perspiration. The world of angel investing is no different.

Here, the stakes may be high, but so are the rewards - provided you're willing to play the long game.

Understand The Industry You're Investing in

Knowledge is power and arms you with the information needed to make informed decisions, and in the investing world, these often translate into profitable ones. Thoroughly understanding the industry landscape means more than just being aware of the current trends.

It encompasses everything from the industry's growth trajectory to evaluating its key players, understanding the competitive dynamics, and identifying potential challenges and opportunities.

• Spotting Potential Winners: Knowing the industry well lets you spot potential winners early in their journey. You can identify start-ups with innovative ideas and strong potential for growth.
• Minimizing Risk: Understanding the industry landscape helps you to identify the risks associated with investing in a particular start-up. It allows you to take calculated risks, thus minimizing your potential losses.
• Maximising Returns: The more you understand the industry, the better you become at predicting trends and capitalizing on opportunities, thereby maximizing your returns.

Evaluate the Startup's Team

A solid team can turn a mediocre idea into a thriving business. Remember, it's not just about the concept but also the people executing it.

”Immerse yourself in the startup’s team.

It’s essential to know the business and the people behind it. It will help you take a good look at the team and each member's personality as part of your investment process.”

Domagoj Oreb, Managing Partner at Feelsgood Capital

In startups, the team behind an idea is often a make-or-break factor. A solid team brings together a mix of skills, experience, and drive. They can pivot when necessary, learn from failures, and push forward despite obstacles.

A few key traits to look for in a startup team:

• Experience: A team with expertise in their industry will likely have the knowledge and contacts necessary to navigate challenges and seize opportunities.
• Passion: Startups require long hours and hard work. A team that is passionate about their idea will be willing to put in the necessary time and effort.
• Adaptability: The ability to pivot and adapt to changing market conditions is crucial in a startup's early stages.
• Collaboration: A team that works well together can more effectively problem-solve, innovate, and execute their vision.

Look at The Startup's Financial Health

Let's dive deep into the nuanced world of a startup's financial health. While profitability might seem like a mirage in the vast desert of financial goals, there are two oasis points that you, as an angel investor, need to keep a hawk-eye on - cash flow and burn rate.

The term cash flow is quite the buzzword in investment circles. But why is it so critical? The cash flow is the lifeblood of a startup.

The net cash and cash equivalents come and go out of a business. It's the company's working capital - the money used for daily operations, from salary payouts to office maintenance.

On the other side, burn rate refers to the rate at which a startup spends its capital to finance overhead costs before it starts turning a profit. High burn rates indicate that a startup is overspending or not generating enough revenue to match its expenses.

Now that we understand the cash flow and burn rate, let’s see how we evaluate these metrics as an angel investor.

Here are a few handy tips for reviewing the startup's financial statements regularly:

• Keep an eye on the company's spending
• Check if the startup's revenues are growing at a pace that can offset its expenses
• Consider the company's cash runway - how long can it function with the existing cash?

Create A Diverse Portfolio. It’s Your Safety Net.

While waiting for your investments to bear fruit, it's wise to diversify your portfolio.

Don't put all your eggs in one basket. Spreading your portfolio by investing in various sectors can help mitigate risks and increase the chances of a successful exit.

• Research: Before diving in, do your homework. Understand the industry, the business model, and the competitive landscape. Knowledge is power.
• Expert Advice: Seek guidance from experienced investors. They can provide valuable insights and help you avoid common pitfalls.
• Expect the Unexpected: Be prepared for surprises. The start-up journey has ups and downs, so resilience is vital.

Conclusions to Remember:

To summarize, angel investing isn't a sprint to the finish line. It's a journey. A long, winding, exciting, challenging, fulfilling journey. Here are some key takeaways:

• Angel investing is a journey, not a destination: Investing in a startup, nurturing it, and eventually making a successful exit requires a long-term commitment. It's an exciting, fulfilling, and sometimes challenging journey that requires patience and persistence.
• Persistence: The world of startups includes uncertainties, and only some investments will turn into a goldmine. But if you're patient and persistent, you can reap the rewards of your investments over time.
• Long-term thinking drives success: Successful angel investors view their investments as financial transactions and long-term partnerships. You invest in a company, its vision, team, and future.

And remember to strap in, buckle up, and get ready for the ride of your life.