A few months ago, in May, the government finally allowed the average person to become an angel investor. This change was known as Title IV of the Job Acts. Technically speaking, it allowed “unaccredited investors” -- that is, individuals who have less than $1 million in assets, earn no more than $200,000 a year and are not professional investors -- to participate in crowdfunding campaigns in exchange for equity in a company. Maybe you’ve already done this, or at least have thought about doing it.
Is it a good move? Before you jump into an investment, consider a few methods used by the private equity world to increase your odds.
Limit the size of your investment.
Many big institutional investors allocate no more than 10 percent of their assets to VC funds. Do the same with your personal “angel fund.” The other 90 percent? Keep that in a well-diversified and appropriately allocated portfolio of stocks, bonds and cash.
Vet everything.
Many private equity funds will look at more than 1,000 investment opportunity in a year but give money to only five of them. Proper vetting is critical and takes time. So whether you’re investing $5,000 or $5 million, don’t jump at the first deal you see. Do your homework, and be ready to say no.
Hedge your bet.
Private equity funds will invest in, say, 30 companies, knowing most won’t pay out -- but betting one or two will hit big. You should play the odds as well, even if all you have is $25,000 to invest. Build a portfolio of at least five investments, and count on losing your money on one or more of them.
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SOURCE: ENTREPRENEUR
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