An angel investor’s role

Angel investors are critical to the start-up world. Once the initial seed round of financing is complete, new companies find themselves somewhat in limbo. They’ve already tapped their friends and family for capital, but they’re too small and unproven to attract deep-pocketed venture capital (VC) and private equity (PE) investors.

“At that point, you start to need more money,” says Len Zapalowski, partner at Vancouver-based boutique business bank Strategic Exits, who has extensive experience with the city's tech-focused angel investors. “Typically, that is half a million, up to another million or two million dollars. That’s really hard to get from multiple investors. It takes quite a lot of time.”

Enter the angel, whose capital may literally keep the lights on until the start-up has an infrastructure and product offering developed enough to get VC attention.

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What does an angel investor actually do?

Your first responsibility as an angel investor is to ensure you’re investing in the right company for the right reason.

“You have to be very clear about why you’re investing,” Zapalowski says. “Tech is really complicated, and there are a lot of moving parts … you need to invest in something that you actually understand, that you’re passionate about, that you will follow.”

Finding a company to invest in will require legwork. Plan on attending forums where entrepreneurs pitch their concepts and products. In addition to meeting prospective partners, you’ll also be able to gauge the reactions their offerings elicit, see what kinds of questions they’re asked and evaluate their answers.

Once you’re invested, you can play it one of two ways: by staying on top of your investment and siphoning up all the information you can about the company’s performance, or by treating it like passive income.

The latter is not your strongest option, according to Zapalowski. “Understanding what’s going on is part of improving your game for the next time somebody comes in with another deal,” he says.

Timelines and possible outcomes

Zapalowski says angel investors, especially those in the technology space, can typically expect their money to be tied up for five to seven years, although some particularly frenzied sectors, like robotics, could see investments come to fruition in as little as three to five years.

The successful end of your journey will come in one of two ways. The company you invest in will either be acquired by a larger entity or grow to the point where it is finally taken public.

But not all angel investors come away with their wings intact. Start-ups don’t always make it.

“It’s not for the faint-hearted. Once you send that cheque, that’s it,” Zapalowski says. “Your money is illiquid for many years … and you may never get your money back. And when you see a product that you think is really sexy, that doesn’t mean that it’s going to sell. It might take a hell of a long time to get to market.”

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Investing for change

Being an angel is a special kind of investing. Opportunities to provide a significant amount of support to a company you believe in, whose CEO you’ve met — and actually liked — don’t come around every day.

Zapalowski believes the desire among millennials and Gen Z to get behind the concepts and products they feel can make the world a better place will create more opportunities for angel investing. “They don’t want to invest in a company that makes a better bomb. They want to invest in a company ... that they consider to be important in terms of social equality or environmental sustainability and an equitable supply chain,” he says.

But the rewards aren’t just emotional. Angel investing can pay off handsomely. That’s one of the reasons why Zapalowski says angel investors have replaced venture capital firms as the driving force behind Vancouver’s thriving technology sector.

“There’s a lot of people who’ve made a lot of money over the years. What they did was become angel investors,” he says. “And they’re all still at it. Every single one I know that came out of that ’80s, ’90s, ’00s generation is still doing angel investing quite actively.

“If it wasn’t that great, it wouldn’t keep growing.”

Fine art as an investment

Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.

That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.

Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.

About the Author

Clayton Jarvis

Clayton Jarvis

Reporter

Clayton Jarvis is a mortgage reporter at MoneyWise. Prior to joining the MoneyWise team, Clay wrote for and edited a variety of real estate publications, including Canadian Real Estate Wealth, Real Estate Professional, Mortgage Broker News, Canadian Mortgage Professional, and Mortgage Professional America.

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