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
