A lot can go wrong if you’re not careful about where you make your angel investments. Making these mistakes is certainly going to force you to learn real-world economics the hard way, which makes it smart to avoid making these mistakes in the first place.
Here are a few things that where inexperienced angel investors could go wrong with:
1. Investing outside your main expertise
While it’s good to diversify your portfolio, it’s a major mistake to invest heavily in industries you have no knowledge or experience in. Experts advise against investing in such domains. However, if you still prefer to add a little more diversity to your portfolio, make sure these are low-risk opportunities and close to your area of expertise.
2. Signing documents without a lawyer
Signing any business deal without an experienced lawyer is bad idea. A living proof of this is Eduardo Saverin, the original CFO of Facebook. Saverin failed to interpret a contract clause that cost him a huge chunk of his Facebook stock.
While you don’t want to diversify too much, particularly in domains that are not in your area of expertise, you want to avoid putting all your eggs in one basket. As an investor, you should be familiar with the concept of diversification to reduce risk. Experienced angel investors typically have investment portfolios with an average of 20 companies.
4. Investing at the first opportunity you get
Your first opportunity may be a good one, but avoid the urge to invest immediately.
The idea behind it is to wait until you can hear pitches from several different startups so that you can discern one from the other.
This is an excerpt from Tech in Asia. You can read the full article here.