With creative startups in the market, being an angel investor is something of a trend. With a slump in real estate and a change in risk appetite, angels are looking beyond the traditional asset classes of real estate and public equities.

Becoming a clever angel though, is essentially different. Diving into early-stage investing has its pros and cons like other asset classes too. Investing in newborn companies is a risk. They are yet to prove themselves to the world, and you definitely cannot risk your money that easily.

Knowing that angel investing needs a smart and clear judgement, here are some crucial points that might help you decide to give it a stop or a go:

  • It’s definitely a risk. Anything that involves money is a risk. Keep in mind that you are about to invest in something that is yet to prove itself to the world. Just like a normal business venture, it may or may not end up well. On the other hand, it might become the next Facebook, too.
  • Illiquidity. Yes, aside from money, angel investing also presents the challenge of illiquidity. If you’re highly engaged in the stock market or real estate, then angel investing might be quite alarming for you. Once you decide to invest, your money might not come out until the end of your average hold (which in the U.S is about nine years, by the way).
  • Use your background and experiences to decide. Many of the world’s angel investors are business entrepreneurs who already went through the startup phase. If you are one of these people, you can use your background and other experiences to come up with the smartest decision in terms of angel investing. These can help you decide which companies to invest upon.
  • Get a pro to help you out. Of course you’d have to sign legal documents to seal the deal. Knowing full well will incredibly help, especially if it’s your first time to do it. You can also set up a few conditions to ensure a return of money. In this way, you’d still be able to get something just in case the startup fails.

With everything that’s necessary in backing up startups, one needs to be cautious while investing as an angel in startups. Just like any other business venture, half of your investments might not be able to make its way back to you, however, the hope is to get bumper returns from the select few The choice is always whether to hedge your risk and make multiple investments or carefully evaluate deals to choose the best one or two. With your money on the line, you definitely have to do your best to help your chosen companies bloom while safeguarding your interests at the same time. When you are able to do that, your investments might multiply ten folds more in the near future.