When starting your journey as an angel investor, it can oftentimes feel hard to know where to start. In this article, we’ll break down what it means to be an angel investor, explore primary motivators, and outline three pathways that early-stage investors can take.
And of course if you’re interested in learning more about the world of angel investing, join us at Angel Fest on May 8 & 9 2025. Angel Fest is an energetic conference empowering and connecting early-stage investors from Minnesota, and beyond. Come curious; leave inspired!
What is Angel Investing?
Angel investing refers to an individual who invests into a startup - this money is usually in exchange for equity. Angel investing typically occurs in earlier rounds of funding for startups (aka the pre-seed or seed stage). During this stage, other traditional capital sources, like bank debt, are not yet available. Meaning, angel investing is usually a longer-term investment with fairly high risk compared to other investment asset classes.
What Motivates Early-Stage Investors?
Before diving into the various different paths available to participate as early-stage investors, let’s first highlight some key motivators to participate as angels. While returns are undoubtedly a primary incentive, angel investors are driven to take on the high risks associated with early-stage investing for a variety of reasons. We've found three broad recurring themes surface in conversations with angels: interest in investing locally, being at the cutting edge of innovation, and creating a lasting legacy.
Investing Locally
Why invest everything into Wall Street? As an angel, you can strategically divert some of your investments into local startups. This early capital has incredible local impact and drives growth in your economy through job creation, economic development, and local innovation. It can also help foster stronger and more direct relationships with founders through opportunities for more face-to-face interactions which typically build more trust and rapport—a highlight for many angels.
Being At The Cutting Edge
Angel investors are also continuously exposed to new innovation and emerging markets that may not have hit the mainstream [yet]. This helps provide ample opportunity to extend learning across trends, technologies, and industries that are showing growth and that might not be a part of your typical day to day. Through hands-on involvement with these companies, angel investors are at the heart of innovation, collaborating with visionary founders on cutting-edge technologies that have the potential to change the way we live, work, and interact. For many people, angel investing is a way to stay sharp and on their A-game.
Building A Lasting Legacy
Angel investing can be a deeply fulfilling journey, allowing investors to invest in the things they care about. By funding companies at their earliest stages, angel investors support startups that typically lack access to traditional financing and that have the potential to drive significant change across various industries. Beyond just providing capital, angel investing can instill a deep sense of purpose by aligning personal values/expertise to your investments and by coaching and mentoring entrepreneurs in their earliest stages.
What are the Different Paths to Angel Investing?
While there are no right or wrong ways to participate as an angel investor, as with everything else, there are a variety of benefits and tradeoffs to consider. Some of the common ones include the amount of time required; capital required and fees taken, and autonomy in making investment decisions.
Limited Partner within a Fund
A Limited Partner (LP) in a venture fund, contributes capital to a pool of funds with other early-stage investors which is then invested into startups by a General Partner(s) on behalf of the fund.
LPs are oftentimes more hands off in the investment process, typically not interfacing with founders or startups directly. Being an LP is the most passive way to become involved in early-stage investing. This is a great option for investors who have limited time to commit to early-stage investing or who don’t want to be deeply involved in the process. Being an LP is a great way to achieve quick diversification in a variety of startups. Not to mention quality funds will also have systems in place to help portfolio companies throughout their growth.
As a Limited Partner, the trade off is you lack control over investment decisions. General Partners may invest in startups that you may not believe in or like. Due to the fact that LPs aren’t actively involved in the investment process you might feel disconnected to the startups you’re investing in. Because LPs are investors in a professionally managed fund, they will pay management fees and carry interest (percentage of returns kept, typically 20%) which will inevitably cut into your potential gains.
The minimum investment amount for LPs in early-stage funds is typically $100K-$250K. Sometimes this will be separated into installments over multiple years. For example, at Groove our Fund II had a minimum investment of $100,000 split over 10 capital calls, which worked out to be roughly quarterly over 2.5 years.
If the LP route sounds like a fit, when evaluating funds you should assess the GPs experience, access to deal flow, and ability to pick quality startups. You should also review the funds thesis in order to ensure it aligns with your personal goals and interests. Lastly, it’s important to note that funds are limited in terms of the number of LPs and/or the total capital they can raise. This means it may take time to find a fund that aligns with your investment thesis and has space for participation.
Angel Networks or Groups
Angel networks and groups bring together a group of investors who pool their resources, expertise, and knowledge. Depending on which angel group(s) you join, you may be required to participate in sourcing high quality deals, conducting due diligence, and negotiating deal terms. The investment minimum per check is typically around $25K, but is based on the founder’s discretion. Some angel groups utilize special purpose vehicles (a tool to collect smaller check writers), on a per-deal basis, to reduce investment minimums, often to $5000.
One of the main differences between being an LP and an angel in a syndicate is the control over your portfolio. While angel syndicates come in a variety of shapes and sizes, each angel has the autonomy to invest (or at minimum vote) on which investments make up their portfolio. A lot of angels also find that being more hands on in the process provides a deeper connection to the startups they invest in.
As a direct angel, you will be signing separate investment documents for each of your investments, making you a separate investor listed on the startup’s cap table (a document outlining ownership structure of a company). This means you will need to get updates directly from the founder, along with your K1 tax documents, and make a practice to monitor your investments directly.
Similar to how you evaluate a fund, when deciding on which angel group to join, you should consider access to deal flow, the syndicates thesis (to ensure it aligns with your investment goals), and the time commitment expected of you as a member of the community. Angel groups generally charge a membership fee regardless of the investments you make and some may also charge other fees, so it is important to look into both. You should also ask if there are any annual investment minimum requirements of the group.
Solo Angel
Of the three options, investing as a solo angel is the most time consuming and challenging way to get into angel investing. A solo angel works independently, and should anticipate a significant amount of time going into your own personal deal sourcing, due diligence, and directly negotiating deal terms.
One of the biggest advantages of being a solo angel are the absence of management fees, membership requirements, and carried interest taken from your gains. But in order to build a portfolio, you’ll need to dedicate more funds upfront.
Like angel syndicates, you will be responsible for tracking and monitoring the investments, and handling all of your tax filings.
Conclusion
When deciding which path to take as an angel investor, your personal situation will play a big part and may change with time. It’s important to note that oftentimes angels choose to participate in more than one way simultaneously.
This article is just the tip of the iceberg on how to begin your angel investing journey, look out for future reads discussing the biggest risks that come as an angel investor and how to mitigate them and our favorite resources that angel investors should check out as they start their journey.
Be sure to join us on May 8 & 9 at Angel Fest for an unforgettable opportunity to connect with thought leaders, engage in interactive sessions, and network with hundreds of fellow investors shaping the future.
