By The Athena Alliance
Erica Duignan Minnihan led a startup investing bootcamp for Athena members, covering the basics you need to know to begin angel investing. She explained the risks and rewards of angel investing, “portfolio theory” and how to create a risk-balanced portfolio, and what criteria indicate a good potential investment.
Read our key takeaways from the salon below. Members can view the full recording in the Resource Library.
- There is a very high risk of total loss when investing in this asset class. There is a very long and uncertain holding period during which you will not get any returns on your investment. Best-case scenario, expect a 5 to 10-year horizon before achieving liquidity or an exit.
- On the flip side, this is a very rewarding practice for angel investors. It gives you the chance to earn above-market returns, form relationships with amazing people working on their passions, learn new technologies, and be on the cutting edge of development.
- To reduce risk as a new angel investor, don’t make your first large investment in a single company. By building a portfolio of 10-20 investments, statistics are on your side to get a positive return. It is critical to have a diverse investment portfolio (including diversity of industries) to ensure the success and longevity of your investing endeavor. The target overall portfolio return is around 25% to be competitive with the market.
- The success of an endeavor isn’t about the product or idea. The number one driver is a strong management team. Other factors include the size of the market, product-market fit, growth potential, and exit opportunities.
- Women seeking funding should focus on the tone of their pitch. “When a woman was pitching a business, the main focus was on what could go wrong with the business. When a man was pitching a business, the focus was on the big picture potential of the business,” Erica said. “That led people to perceive the female founder as a riskier investment and the male-led business as having a lot more upside potential.”
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