Evaluating Your Options as an Angel Investor
If you're an angel investor—or considering becoming one—you essentially have three paths to deploy capital into startups:
- Invest directly as an angel.
- Join a syndicate, such as mine or others.
- Invest through a venture capital (VC) fund.
1. Direct Angel Investing
When you invest directly:
- You choose the companies and control cheque size.
- Your portfolio consists of multiple investments—each with the same capital allocation.
- The worst outcome for each investment is a full capital loss; the best could be outsized returns (10x, 50x, or more).
- Your overall return is the sum of each individual company’s outcome. A few strong winners must more than offset the inevitable losses.
Your total return = Gains from winners – Losses from failures
2. Investing Through a Syndicate
When investing via a syndicate:
- You see curated deal flow and can opt in or out of each deal.
- On average, ~5% of your capital goes toward fees (SPV setup, admin).
- 95% is deployed into the startup.
- Above your initial capital (1x), syndicate leads typically take 20% carry on profits.
3. Investing Through a VC Fund
Investing in a fund means:
- You’re part of a blind pool; fund managers (GPs) make all investment decisions.
- Typical fee structure: 2% management fee annually for 10 years + 20% carry on profits.
- Only ~80% of your capital is invested (after fees).
- You receive your original capital back, plus 80% of profits above a hurdle rate (often 7–8% annually).
You’re fully passive, and need to be comfortable with:
- Large minimum cheques (often $250K+)
- No control over deals
- Long time horizons
FAQs
What are the main ways an angel investor can invest in startups?
Angel investors can invest directly into startups, participate through syndicates, or allocate capital to VC funds. Each option differs in control, fees, risk exposure, and time commitment.
How does direct angel investing work?
Direct angel investors choose companies and cheque sizes themselves. Returns depend entirely on individual outcomes, with a few big winners offsetting multiple losses.
What are the trade-offs of investing through a syndicate?
Syndicates offer curated deal flow and flexibility to opt in or out of deals. Investors typically pay setup and admin fees and share upside through carried interest on profits.
How does investing in a VC fund differ from syndicates and direct investing?
VC funds operate as blind pools, with GPs controlling all investment decisions. Investors pay ongoing management fees, have little control, and must commit capital for long time horizons.
Which option is best for a new angel investor?
It depends on experience, risk tolerance, and desired involvement. Syndicates often balance access, diversification, and control, while direct investing and funds sit at opposite ends of the spectrum.
