November 27, 2021

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4 Expert Tips to Become an Angel Investor and Generate Profits While Supporting Entrepreneurs

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If you have good capital and want to start investing in the most promising startups in Mexico and Latin America , but you don’t know where to start, here are some expert tips to become an Angel Investor .

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Within the framework of the IOS Network Summit 2021 Collision = Innovation , the event organized by IOS OFFICES that brings together the most influential business community in the country, a panel of experts in both entrepreneurship and investments, gave some tips so that you can convert your money in juicy business opportunities , while promoting the entrepreneurial ecosystem.

The Angel Investor conference: recommendations for investing and how to become one , brought together three specialists on the subject: Américo Ferrara , Managing Partner of Life Is Too Short Capital, partner of HypEd Capital and director of Brillamont; Eduardo de la Garza , general manager of Mty Digital Hub and active investor; and Santiago Sada , founder of Grupo Medes and co-founder of Angel Hub Ventures, a network of angel investors that invests in innovative and highly scalable projects.

“In Mexico, particularly, a multitude of practically virgin opportunities to invest has been detonated,” said de la Garza, who has invested in more than 20 startups. “In the last two years there has been an allocation of risk capital, specifically venture capital, greater than what has been invested in the entire history of Mexico.”

Eduardo explained that “we are living through a turning point of incredible entrepreneurial talent in our country, which is the result, in part, of the importation of talent from different regions of South America and the United States, and the emergence of Mexican entrepreneurs, all with companies that already they have a local technological presence. That causes them to come with the mentality of growing their business and understanding the rules of raising capital ” .

For an angel investor network to work, it must have people who can invest in funding rounds. In the United States this is very consolidated, so there it is faster to raise capital. In Mexico, experts emphasize, we have the raw material to do it, but there is a lack of structure to accelerate the growth of startups.

These are the key tips that investor experts shared so that you too can become an Angel Investor :

1. Determine if you are really ready to be an investor

“We must take into account that we are talking about investing in startups, which are high-risk and high-innovation vehicles, which leverage technology to detonate, seize or create a completely new market,” they said. “The angel investment model is invest in a large number of these startups with the expectation that a small percentage of them will be successful. But when those few startups are successful, your investment multiplies exponentially ”.

It is for people who have four priorities:

  1. You want to get involved with an ecosystem with high innovation profiles
  2. They see your investment in the long term. “On the angel investment issue, the life cycle expectancy of the investment can be 5 to 10 years,” said Sada.
  3. They want to see a better entrepreneurial ecosystem in their regions for themselves and the next generations.
  4. They want to solve the problems that have the greatest impact on society.

“It is always advisable to invest in something that you are an expert in or that at least you know. The angel investor, unlike Venture Capital, is more involved with the entrepreneur. Then, he must give advice and contacts, among other things, in addition to the capital, “ said Santiago. “It requires trust and patience, and believing a lot in the entrepreneur.”

2. Know the financing cycle of startups

Normally, Américo Ferrara explained, entrepreneurs go through three stages of raising capital and you have to “identify where in the financing chain you want to enter.” These are:

  1. The ‘Family and Friends’ and accelerators
  2. Investor Angels
  3. Venture Capital

“For an enterprise to go from the first stages to the important Venture Capitals, they must rely on an Angel Investor” , indicated Américo.

De la Garza added that in Mexico “there are only between 500 and 1,000 angel investors, I estimate about 750 throughout the country, while in the state of California alone there are more than 10,000, as in New York and Texas.”

Image: Depositphotos.com

3. Choose well what you are going to invest in

While all three agree that you should diversify your investments , they also highlight the importance of choosing wisely which industry to put your money in.

In addition, Sada said that you should look for “an industry in which a lot is being invested” , to open the possibility that others invest in the same startup and can grow faster, which will translate into more profits for you.

According to the panelists, at this time the industries that receive the most investment are “those in which there are more problems” and that have global significance: education, financial technologies, insurance and health .

“Although apparently the whole issue of FinTech is saturated, Latin America is not so digitized. There may be 100 neobanks and 100 digital cards, but there is a market for everyone. There is an opportunity there ” , explained Américo Ferrara.

“The next big industry to invest in is education, EdTech . What is happening right now with FinTech, is what will happen with education in the coming years in Latin America. Throughout the world there are opportunities in this area, due to the changes in the educational model as a result of the pandemic and the demand for personalized learning ” , added the expert investor.

“If you already see that an industry is taking flight, you’re already late, you have to get on early,” advised Américo.

4. Join an Angel Investor Club

“You must have speed, quality and volume of connections, as well as investments, mentoring and concretions, to support the entrepreneurial ecosystem. And you find that in an investment hub, ” said de la Garza.

In this sense, he spoke of the importance of ‘trust capital’ , which “only exists when you have support actors to pre-select or filter entrepreneurs with more growth potential and less risk to invest.”

“We see the entrepreneur, his vision, previous experience, his strategy, his value proposition and if this aligns with the objectives, interests and connections of the corporate and investors ,” Eduardo added. “This ecosystem of angels helps those who are interested to invest with confidence.”

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