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The first step in any investment… is learning how to invest! When you're starting out as a Business Angel, the big question that comes up very regularly is: what is the right ticket size to invest in a company? You're in luck, we're here to guide you!
Determining your budget
The first, and perhaps most important, step is to determine the size of your overall budget. This is the amount you are prepared to invest in private companies (i.e., potentially startups). To give you an idea, most investors put between 5% and 20% of their total investment budget into early-stage startups.
Once you have this budget, the idea is to learn how to generate deal flow. This is the time to build your own market knowledge, learn what makes a good deal, and so on. If you want to know more, we have some great articles on this subject:
Finally, you need to determine whether you want to invest directly or through investment funds (VC funds).
Investing small or large tickets?
Let's move on to the second step: deciding between investing small or large tickets. On this point, there are 2 types of investors:
- Those who make many small investments
- And those who make fewer investments but for larger amounts.
What are the pros and cons of these two strategies?
Investing LARGE tickets
If you want to invest large tickets, you will need some experience. Why? Because you will need to follow your holdings very closely to provide value to the entrepreneurs. The goal: to protect the capital you have invested.
The advantage? These large tickets will make it easier for you to get into certain deals.
Small tickets
When investing directly, it is not uncommon for some investors to be turned away because they are offering tickets that are too small. Of course, it is not impossible to get into deals with a small ticket. But in exchange for that ticket, you will often have to demonstrate your added value: your network, your experience in a certain field, etc.
So, if you plan to invest small tickets, the best approach is to get into companies via SPVs (Special Purpose Vehicles) offered by investor clubs on certain deals. This way, you can put many small tickets into several different companies. Spreading your tickets is also about diversifying — the #1 rule for every investor.
Our advice
When you put money into a company, the ideal approach is to keep some cash on hand so you can reinvest later. Because you also have to think about what comes next! If the company is doing well, will you put more money in during the next round? And if so, how much? When you are already in a deal, you have access to all the behind-the-scenes information that outside investors don't have. You’ll know early on if the company is performing well, what its future projects are, and so on. And that is a real advantage!
Major mistakes to avoid
Acting too quickly
We’ve seen many entrepreneurs sell their companies for very handsome sums. Their first instinct? To invest! That’s great, but be careful... Many of them invest thinking they know the startup environment, and they end up writing checks that are too large. Big mistake.
Investing amounts that are too large
Don’t spend it all at once. Otherwise, you won’t be able to jump on a good opportunity if one comes along. Let’s stop you right there: don’t even think about exiting a company to free up cash for reinvestment. In the investment world, your money is tied up for an average of 5 to 7 years. So, during those years, you still need to keep some cash available so you can invest if a great opportunity arises.
A few tips
And of course, we’ve saved the best for last: our tips to help you determine how much to invest!
Once you’ve defined your total budget, invest it over a period of at least 12 to 24 months by spreading it across 10 to 15 deals.
Example: If you have €200k to invest, a good strategy could be to put two €50k tickets into two early-stage VC funds to learn the ropes and generate deal flow. Then, distribute the remaining €100k across ten €10k tickets. Finally, always keep a small reserve of cash for good opportunities.
And if you’re still hesitant, we can support you directly through our community of Business Angels and our VC fund. So, get in touch with us!
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