Should you be an angel investor?

Susanne Chishti is not only the founder of FINTECH Circle—Europe’s first angel network focused specifically on FinTech, or financial technology—she also has over 15 years experience in the banking industry. We asked her about the quick facts prospective Angel Investors should know.

By Susanne Chishti

It’s not the same as traditional equity investing. When you invest normally in equities, you know they are a risk. However, equities can be listed on stock markets. If you buy any listed company and you don’t like it, you can sell it and get money back—there’s that secondary market out there. In terms of angel investing, there’s no secondary market for private firms.

You should only invest money you could afford to lose. If you invest in private companies the safe thing to say is to not invest any money that you actually need. Of course investors want to generate attractive returns—the only reason they invest is because they believe in those companies strongly—but statistically, it won’t happen every time.

They’re not all winners. With angel investing, you always have to assume that more than 50% of your investments actually lose money or have to be written off. But the other 40% hopefully make money, and out of that number, maybe 5-10% are the big winners who might generate significant returns on your investment.

Angel investors come in all size and shapes. Some angel investors put in £50 thousand or more per investment. In our experience, angel investors ofen start with £10 thousand pounds [just over $20,000 CDN]. So, to reach their goal, startups might have 10-20 angel investors who spend £10 thousand+ each or a lesser number of investors with bigger “ticket sizes”.

Related: Collaborating on Disruption: How Susanne Chishti is connecting investors to FinTech Startups

Spread your wealth. Similar to companies looking for multiple investors, Angels might put £10 thousand across 10 companies, creating a £100 thousand portfolio—but not immediately. You could spread it across a year, two years, three years; slowly investing in private companies so that you create a diversified portfolio and you don’t put all your eggs in one business.

Take a long-term perspective. Long term means it’s probably five to seven years or more before you can see an exit. This can either be a trade sale, where the company sells itself to another buyer, or it could be an IPO, where the company lists on the stock market and then you can liquidate your shares..

Entrepreneurs want smart money. They want people who can invest in them, but who can also add expertise, mentoring, coaching, and an established network. When I set up FINTECH Circle, the idea was to connect the best investors with the best FinTech entrepreneurs, and that means we have 100% alignment—the companies who pitch are understood by their investors, and therefore they are interested in what they’re hearing and interested to contribute in terms of investment, expertise, and knowledge sharing. If you’ve got a financial services, technology or telecoms background, and understand the disruptive opportunities of financial technology, angel investing in fintech startups might be very rewarding both short- and long-term.

Susanne Chishti is the Founder and CEO of FINTECH Circle, Chairman of FINTECH Circle Innovate, and Co-Editor of The FINTECH Book.