Angel Investing Basics By Angel Investing School Introduction Chapter One Chapter Two Chapter Three Chapter Four Chapter Five 3 5 7 8 9 10 Contents Conclusion 11 Welcome to the Angel Investing School Angel Investing VS Stocks & Shares Overlooked & Undervalued ways to grow wealth The AIS Mindset and why you need it to succeed in this game Active VS Passive Angels How to get started today Glossary 12 What next? Terms that every aspiring angel investor should know Welcome to the Angel Investing School (AIS) I N T R O D U C T I O N Our Big Dream Over the last few years, we've taken over 400 individuals living across 50 countries and from all walks of life on a transformative journey. We've helped them create meaningful connections and gain the knowledge they need to thrive in the startup ecosystem. Collectively, our community has invested over £3M in startups. So whether you have a full-time job, a successful business, or a freelancing career, we believe that angel investing is something that everyone should have the opportunity to experience. Investing in early-stage businesses has historically created immense wealth for a select few who had access to the right information and tools, leaving behind a significant equity wealth gap. Our dream is to bridge this gap by empowering YOU with tools and knowledge to build wealth for yourself and future generations to come. At Angel Investing School (AIS), we imagine a future where individuals like you can own your private Family Office, making strategic investments across diverse asset classes to safeguard and grow your family's generational wealth. How it Started Our journey began as a candid discussion about wealth and equity dynamics, and it has evolved into a powerful movement aimed at helping experts, professionals, and entrepreneurs create wealth through investing in startups with as little as £1,000. W W W . A N G E L I N V E S T I N G S C H O O L . C O M @ A N G E L I N V E S T I N G S C H O O L 3 I N T R O D U C T I O N Angel Investing Through the Ages The 20th century saw the emergence of angel investor groups, bolstering startups and innovations. With the advent of technology and globalisation, angel investing transcended borders, allowing investors to support ventures worldwide. Today, angel investors play a crucial role in nurturing startups, driving innovation, and shaping the business landscape. Angel investing is not a new phenomenon; its origins can be traced back in time to great historical adventures, such as Christopher Columbus' Westward Voyage, which Ferdinand and Isabella of Spain financed. This early form of investing involved both financial and emotional support for high-risk endeavours. The term 'Angel' was popularised within Broadway theatre, where well-to-do patrons of theatre would reach into their own pockets to back shows or talent they liked, giving productions a shot at success instead of facing failure even before opening night. In 1978, William Wetzel, a then-professor at the University of New Hampshire and founder of its Center for Venture Research, completed a pioneering study on how entrepreneurs raised seed capital in the US. He used the term “Angel Investor" to describe the investors who supported them. Over time, this concept evolved into backing entrepreneurial ventures, ultimately leading to the establishment of angel investing networks. The Evolution of Angel Investing W W W . A N G E L I N V E S T I N G S C H O O L . C O M @ A N G E L I N V E S T I N G S C H O O L 4 C H A P T E R O N E Angel Investing VS Stocks & Shares Angel investing and traditional stock market investing are two distinct approaches to building wealth through investment. Both avenues offer opportunities, risks, and potential rewards, but they operate within different frameworks and involve varying levels of engagement. Let's explore how these two investment methods compare and contrast. 2) Risk & Reward Angel investing is considered high-risk, high-reward. Startups have a higher likelihood of failure, but successful ones can yield substantial returns – ranging from a 10x to 1,000x or more return on your investment. For example, Mike Walsh’s $5K investment in Uber returned him nearly $25 million between 2010 and 2019 (5000x ROI). The best part is that angel investors often take an active role in mentoring and advising the companies they invest in, to mitigate risks and increase the chances of success. Investing in stocks and shares carries its own set of risks, but it generally offers more liquidity and diversification, with much lower returns ranging from a 2x to 10x return on your investment. For example, if you invested $5K into the S&P 500 in 2010, it would have turned into roughly $18K by 2019 (3-4x ROI). 1) Investment Focus Angel investing is primarily focused on investing in privately-owned, early-stage startups (small businesses) with high growth potential. It involves providing capital to entrepreneurs in exchange for ownership equity or convertible debt. This type of investment allows angel investors to have a direct impact on the growth and success of the companies they invest in. On the other hand, investing in stocks and shares involves buying shares of publicly- traded companies listed on stock exchanges. This type of investment gives individuals partial ownership in large, established corporations, although you have no control or impact on the growth of the business. The value of stocks can be influenced by market trends, company performance, economic conditions, and other external factors. W W W . A N G E L I N V E S T I N G S C H O O L . C O M @ A N G E L I N V E S T I N G S C H O O L 5 How do they both compare? C H A P T E R O N E 4) Returns & Time Horizon Angel investors typically expect higher returns compared to traditional stock market investors. However, these returns may take shorter (years) or longer (decades) to materialise, and there's also a likelihood of not seeing a return at all if a startup fails. The time horizon for angel investments can vary; an exit occurs typically through acquisitions or initial public offerings (IPOs). Stock market investing offers the potential for small consistent returns over a long period of time, and the time horizon can vary depending on the investment strategy. Some investors seek short-term gains through trading, while others take a long-term approach, benefitting from compounding returns over decades. The average stock market return over 15+ years is between 8% - 12%. 5) Capital Requirement Angel investing often requires a higher starting amount, from around £1,000, to make individual investments in startups. Whereas investing in stocks and shares is more accessible, with a starting amount of as little as £5. Fractional investing and robo-advisors have also made it easier for retail investors to enter the stock market. 3) Involvement & Expertise Angel investors are often hands-on and involved in the startups they fund. They leverage their industry expertise, networks, and guidance to support the growth of the companies. This direct involvement can be fulfilling for investors who enjoy actively contributing to entrepreneurial success. On the other hand, investing in stocks and shares is often more passive. Investors can choose to research and monitor their investments, but they don't typically have the same level of influence over the companies' operations or strategies. W W W . A N G E L I N V E S T I N G S C H O O L . C O M @ A N G E L I N V E S T I N G S C H O O L 6 C H A P T E R T W O Overlooked & Undervalued ways to grow your wealth In the finance space, we talk about the importance of growing your wealth through mediums such as real estate, stocks & shares, starting a business, and the list goes on. But at AIS, we believe there are TWO other ways that are often overlooked and undervalued. Early Employee of a Startup Joining a hyper-growth startup in its early stages, although sometimes risky, can be a very strategic move to accumulate wealth. Many startups give their early employees equity as part of their compensation package, allowing them to benefit from the company's growth and success in the future. Being part of a promising startup can provide a unique opportunity to learn fast, create, and build your wealth quickly – if you choose the right company. Note: This is your sign to negotiate equity as part of your compensation package if you haven’t done so already! Early Investment in a Startup (Angel Investing) Angel investing is a powerful means of growing your wealth while supporting innovative entrepreneurs. A viral example would be how Mike Walsh turned $5k into $24M+ when he invested in Uber. Outlier, maybe, BUT gaining early access to great opportunities is the name of the game. W W W . A N G E L I N V E S T I N G S C H O O L . C O M @ A N G E L I N V E S T I N G S C H O O L 7 INVESTORS IN START-UPS THAT CREATE VALUE C H A P T E R T H R E E The AIS Mindset TThe "AIS Mindset" revolves around two central principles: value creation and purposeful investing. At AIS, we believe that to attain generational wealth in this day and age, you either need to become a value creator and/or invest in those who create value. We believe that angel investing isn't just about monetary returns; it's about contributing to value creation within startups. By aligning your investments with value creation, you actively drive positive change in the entrepreneurial landscape. Purposeful investing means aligning your investments with your values and beliefs. It's about backing businesses that resonate with your passions and contribute positively to society. Embracing purposeful investing elevates your role as an angel investor from a passive stakeholder to an active catalyst for growth. The AIS Mindset explained: Why you need it to survive in this game START-UPS THAT CREATE VALUE W W W . A N G E L I N V E S T I N G S C H O O L . C O M @ A N G E L I N V E S T I N G S C H O O L 8 JULIE FEDELE ANDY AYIM CATHY WHITE VERA BAKER C H A P T E R F O U R Active VS Passive Angels: What do you want to be? As you venture into angel investing, it's essential to define your role and approach. This section outlines the distinction between passive and active angel investing, and helps you determine which aligns with your goals and resources. Passive angel investors These types of angels provide capital to startups but typically take a more hands- off approach, allowing the founders to drive the business. They provide funding and guidance when requested, without actively involving themselves in day-to- day operations. Passive investors often prefer to focus on diversifying their investment portfolio and relying on the expertise of the startup's management team. This approach suits investors seeking diversification and limited engagement and can sometimes be a great thing as they stay out of the way of founders and let them get on with it. While it requires less hands-on commitment, passive investors still benefit from potential returns. Active angel investors These types of angels usually go beyond providing capital. They actively engage with the startup, leveraging their industry knowledge, connections, and insights to help the startup solve any problems and accelerate their growth. They may also take on advisory roles, provide mentorship, and actively participate in decision- making processes. This means that you also have the opportunity to influence the direction of the business. This approach demands more time and engagement but can lead to higher impact, deeper connections with entrepreneurs, and sometimes higher returns. W W W . A N G E L I N V E S T I N G S C H O O L . C O M @ A N G E L I N V E S T I N G S C H O O L 9 C H A P T E R F I V E How to get started today: Your quick start guide Step What How 1) Get plugged in Subscribe to the AIS Angel Insider to stay up to date with what's happening in the startup & angel investor space. Receive weekly insights and bite- sized pieces of information on angel investing. Join the AIS Angel Insider weekly newsletter 2) Educate yourself & Define your strategy Clarify your investment goals, focus areas, risk, and check size. Determine the types of startups you want to support and the sectors you find most interesting. Having a defined investment thesis and strategy will guide your decision making and increase your chances of success. Enrol in the 5 week AIS Live Course 3) Network & find deals Connect with other angel investors, entrepreneurs, and industry experts. Keep up to date with trends, attend events, join communities, and engage in conversations. A strong network can provide valuable insights, deal flow opportunities, and potential co-investment collaborations. Join the monthly membership 4) Self Certification Before you make your first Angel investment in the UK, the FCA requires you to self certify either as a High Net Worth or Sophisticated Investor. Self Certification Statement 5) Choose your investment vehicle You need to decide whether you want to invest as an individual or set up a company that you invest through; both have their pros & cons. For example, investing as an individual means you could get up to 50% back in tax via the EIS/SEIS tax relief scheme. Learn more about EIS/SEIS W W W . A N G E L I N V E S T I N G S C H O O L . C O M @ A N G E L I N V E S T I N G S C H O O L 1 0 - ANDY AYIM MBE C O N C L U S I O N What next? Founder & Director Angel Investing School Be ready to invest in just 5 weeks Week 1 Welcome & Course Overview Week 2 Week 3 Week 4 Week 5 Developing your Thesis Sourcing & Screening Pitch Decks The Legal Anatomy of a Deal Building a Value First Personal Brand Our live course runs twice a year. It is a 5- week intensive program designed to take you from knowing nothing about angel investing to feeling confident and knowledgeable enough to support and invest in the companies you truly believe in, with expert-led content, real-world case studies, and a supportive community. Congratulations! You've taken your first steps into the exciting world of angel investing. We hope this e-book has provided you with valuable insights, setting the foundation for your journey. Now, you're ready to take your knowledge and passion to the next level. Want to dive even deeper into the intricacies of angel investing? W W W . A N G E L I N V E S T I N G S C H O O L . C O M @ A N G E L I N V E S T I N G S C H O O L 1 1 Terms that every aspiring angel investor should know G L O S S A R Y Term Definition Angel Investor An individual who provides financial backing for small startups or entrepreneurs in exchange for ownership. Cap Table An analysis of a company’s percentages of ownership by founders, investors, and other owners. If a new company was started today with 4 co-founders and the equity split equally between them. The cap-table will equate to 25% ownership for each founder. Due Diligence A comprehensive review of a business undertaken by a prospective buyer or investor. When assessing startup pitch decks, investors review the problem, founding team and key metrics among other things. Deal Flow The number of investment opportunities available at a given time to a particular company or investor. Top VCs in the UK such as Local Globe, Atomico and Index Ventures invest in less than 5% of the dealflow they receive. Equity Ownership interest in a company typically represented by shares or stock. Early-stage Business This is the stage at which the business is finalising its product or services and gathering market data. This is also called the seed stage of a startup. In many cases, it also includes getting enough funding to support product development. Exit Strategy A founders strategic plan to sell their ownership in a company to investors or another company. W W W . A N G E L I N V E S T I N G S C H O O L . C O M @ A N G E L I N V E S T I N G S C H O O L 1 2 G L O S S A R Y Term Definition Family Office A privately held company that handles investment management and wealth management for a wealthy family, generally one with at least $50–100 million in investable assets, with the goal being to effectively grow and transfer wealth across generations. Funding Round The number of times a startup goes back to investors to raise more capital. The goal of every round is for founders to trade equity in their business for capital they can utilise to advance their company to the next level. Publicly-traded Company A company whose ownership is organised via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. Pre-seed Round Often treated as the first round of funding from family and friends and/ or angel investors. Investing at pre-seed is usually high risk as the startup hasn’t found product/market fit and there is a high risk of failure in the first 2 years of starting a business. Runway The months remaining that the company can afford to operate given the burn rate, revenue per month and money in the bank to cover operational costs. Term Sheet Non-binding agreement outlining the conditions of an investment. Usually the lead investor in a funding round presents the term sheets all the other investors agree to. Valuation An estimate of how much a business, property, art or any asset is worth. For valuing startups, things differ as many times they are pre-revenue. There are several methods investors use i.e. comparing against existing companies who are similar. Visit the AIS Dictionary to learn more terms W W W . A N G E L I N V E S T I N G S C H O O L . C O M @ A N G E L I N V E S T I N G S C H O O L 1 3