10 secrets to build wealth through angel investing 1€¦ · 10 secrets to build wealth through...

10 Secrets to Build Wealth through Angel Investing 1


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Table of Contents4 A Word from the Author5 About Nate Stavseth6 Secret #1 Join (the Right) Platform8 Secret #2 Get in Touch with Your University10 Secret #3 Launch a Blog or Podcast12 Secret #4 Start with the Founders14 Secret #5 Revenue Now Means Revenue Later16 Secret #6 Stay in Your Lane18 Secret #7 Look for a Huge T.A.M.20 Secret #8 Insist on Pro-Rata Rights22 Secret #9 Smaller Money, More Deals24 Secret #10 Do Your Work (and Then Some...)26 Afterword


Pat yourself on the back. I’m serious. Reach up and give yourself some props.

You just embarked on a journey to the next frontier of wealth creation. It’s called angel investing, and it’s how you turn $10,000 into $10,000,000.

If you’re new to angel investing, you’re not alone. Up until 2012, angel investing was against the law for anyone who wasn’t super rich. (Surprise, surprise!)

The JOBS Act changed all that. Now, almost anyone can get in on the ground floor of exciting, early-stage companies and reap the 100,000% gains that come with them.

Welcome to the next stock market.

I got into angel investing a few years ago with the help of my co-founders at RagingBull, all experienced angels.

Together, we built an incredible, $100 million company. But I was even more blown away by what these guys were making from their investments on the side.

I wanted in on it. And I want you to get in on it, too.

10 Secrets to Build Wealth through Angel Investing pulls together the most powerful tricks and tips I have learned working with my partners, who are some of the best angels in the world.

This book will get you started on your angel journey. And, if you’re already on your way, it will show you how to make smarter, more profitable investments.

But it won’t do it all. There’s a ton to learn, and, in the beginning, angel investing is hard work. And I want to give you the benefit of my experience so that you not only succeed, but avoid some of the pitfalls along the way.

If you’re serious about angel investing - if you want to turn $10,000 into $10,000,000 - then do yourself a favor and check out my free live training on the New Wave Wealth system.

This course is carefully organized with everything you need to know to become a successful angel investor. And it solves some of the biggest problems right off the bat.

Whatever you decide, you’re on the right path to creating generational wealth.

To catching unicorns,

A Word from the Author

Nate Stavseth


After graduating college in 2013, Nate Stavseth tried his hand at entrepreneurship, starting a home renovation business, a personal training business, and a bar. He finally ended up on the founding team at an upstart financial publication, and RagingBull was born.

After years of blood, sweat, and tears, Nate and his co-founders built RagingBull into a $100 million company… and growing. But the real money, he learned, was being made by the angels investing in RagingBull and other early-stage companies. Now he’s on a mission to teach as many people the angel investing secrets that have made him and his partners wealthy beyond their wildest dreams.

About Nate Stavseth


All angels, whether new or experienced, have a problem: Deal Flow.

Deal Flow is how we find startups to invest in.

Basically, deals and/or startups are referred to us through our networks.

Deal Flow is the most important part of succeeding as an angel investor. That’s because Deal Flow determines the quality of the startups you’re investing in.

So if you’re looking to improve your Deal Flow quickly, what can you do?

The fastest solution is to join a Platform.

Platforms host deals for investors; AngelList, OurCrowd, and Propel(X) are some of the biggest ones. They often have VC funds attached to them. They handle a lot of the legwork for angel investors: finding deals, vetting deals, and negotiating closings.

That sounds brilliant, right? Just let some VC wizards find amazing companies, pool your money with them, and cash in when it’s time to IPO.

Secret #1 Join (the Right) Platform1

THERE ARE TWO BIG CATCHES HERE:

1. Platforms can be very picky about the type of investors they choose to work with.

2. They are going to take a lot of your money in the process.


Platforms generally take a 5-10% administrative fee up front, plus a significant amount of any profits you make.

Many platforms only work with high net worth individuals. So you’ll have to do your homework to find which is the best fit for you.

That being said, for an angel trying to level up their game, a platform can be a great option to start making connections and to get into some quick, well researched deals.

Angel investing is hard work and takes time. So what is driving you? Make a list of your financial and personal goals for the next ten to twenty years, and identify the number one reason you are pursuing angel investing.

Administrative FeeCarry-on Interest FeeLead investor Carry-on Fee

2-10%10-30%

5-10%

Action Items

The Cost of Doing Business with a Platform


Let me start this section with a giant caveat:

For the most part, I think college is a big waste of money.

Paying someone $80,000+ to tell you to read a book… and then not reading it? Not exactly a brilliant investment.

What I did get from my alma mater were connections (that, and generally great memories). I started my first business with people in my alumni network, and met my co-founder at Raging Bull through a professor.

As an angel, that’s exactly how you should use your college, too.

Your university is one of the best places to turn when building your deal flow. Most of them (at least, most larger universities) have entrepreneurship programs, startup labs, and alumni angel groups.

At the very least, they have professors - the O.G. subject matter experts.

2Secret #2 Get in Touch with Your University


Research your alma mater or nearest research university for information on entrepreneurship programs, startup labs, or alumni investment groups.

Research Universities in the U.S.World Leading Research Universities in the U.S.University-based Entrepreneurship/Startup ProgramsAlumni Angel Groups or Funds

41822025550+

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Universities By the Numbers

What makes universities a secret weapon for new angels is that the barrier to entry is low. As an alumni, you already have a foot in the door. There’s an army of administrative staff to point you in the right direction.

Most people have a university connection. But if not, don’t sweat it. You can still reach out to your nearest major research university, and they should help you out.

“Go State!”; am I right?


3This is one of my favorite secrets, because who would ever think that starting a podcast or publishing a blog could make you a better angel investor?

Actually, this might be the best thing you can do to build up your deal flow.

Why?

Because deal flow is all about “Domain Kknowledge.” (That’s professional knowledge in a specific industry or discipline… your “sphere of influence”.)

The more Domain Knowledge you have, the more connected and trusted you will be. That means more founders and investors will want you to be part of their deals.

Secret #3 Launch a Blog or Podcast

But here’s the catch: No one is going to know that you’re a total boss in your industry unless you’re out there showing the world.


Find a new podcast, YouTube channel, or writer in your domain space and consume some of their content. What did you like about it? How was it different from other experts you already follow?

Start a blog or podcast or ask podcasts or blogs that you read and respect whether they accept guest contributors? Become known as an expert in your field.

def. Knowledge of a specific, specialized discipline or field. Expert or professional knowledge.

Action Items

Definition | Domain Knowledge

Starting a podcast or blog will also force you to be researching new ideas and trends in your domain. And, it’s a great way to build connections (e.g. asking founders and investors to join your podcast).

In other words, you’re building your Domain Knowledge, your network, and your reputation all at once.


4Having a strong deal flow will give you access to better companies. Better companies mean more returns. Simple as that.

But most startups fail. In every deal flow, you’re going to find winners and losers. A lot of companies that look great on paper don’t actually have a chance.

So how do we tell “the next big thing” from a bad investment?

What does a billion-dollar company look like when it’s two engineers, a slide deck, and a garage?

And what red flags should you be looking for?

Secret #4 Start with the Founders

Angels call the process of

evaluating startup deals “Due

Diligence”. I have a special

Due Diligence formula I call

The Triple Threat Test.


Make a list of your own strengths and weaknesses, along with examples of how they express themselves in your life. Do any of your strengths complement your weaknesses? What would you look for in a founder?

def. My personal formula for evaluating startups based on Founders, the Market, and the Investors.

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Definition | Triple Threat Test

The Triple Threat Test starts with the founders.

That should come as no surprise. Every day, the headlines are peppered with the names of famous founders: Gates, Bezos, Zuckerberg, Musk…

Great founders can make a company. And founders just shy of great spell disaster.

So how do you know when you’re dealing with great founders?

There are many factors to consider here. But the best best place to start looking is their resumes, LinkedIn profiles, and the About pages of any websites they are associated with.

If your founders have a track record of other successful startups, then you’re in business.


When you’re looking at a startup, remember that the odds are always against it.

Great founders carry their company across the finish line despite those obstacles.

But their job becomes a lot harder if their product wasn’t viable to begin with.

We assess viability with a simple question, “Is this product or service solving a real pain point for the customers?”

That simple question is one of the trickiest in all of business. Many multi-billion-dollar companies have died on that hill.

Fortunately, there is a simple rule we can follow with startups to assess whether there is a real demand for the product:

5Secret #5 Revenue Now Means Revenue Later

If a product has sales - any sales at all - that means there’s demand and

the product is “viable”.


Time to start thinking like a founder. Is there a persistent pain or irritation in your life you wish you could fix? What solutions already exist, and why haven’t you (as a potential customer) started using them?

def. Most angels invest in companies just before they finish their minimum viable product. We call this the Valley of Death or Capital Gap, when companies have expenses but no revenue.

Action Items

Definition | The Valley of Death

I use quotes around “viable”, because, again, these are just indicators.

But as far as indicators go, having already gained traction is one of the best signs from an early-stage company.

Even companies who pivot (change their offering) multiple times do better when they’re bringing in some kind of revenue.

Of course, many early stage companies haven’t even finished their product, much less started marketing it.

We don’t necessarily want to write these companies off… just know that it’s a little riskier investment.

Looking for startups with revenue and traction is just another small piece of my Triple Threat Test.


Secret #6 brings us back to the idea of Domain Knowledge.

If you remember, Deal Flow (the most important part of being an angel investor) is all about Domain Knowledge. You become an expert, and founders start to pay attention to you.

But, Domain Knowledge has an added benefit. It helps us choose the best companies.

6Secret #6 Stay in Your Lane

You want to invest in the best companies possible, right? Well, how can you know whether a company is good or bad, if you don’t know anything about their business, or their vertical?

I recommend investing in companies in a vertical you’re familiar with (at least in the beginning).

That’s why Secret #6 is “Stay in your lane.”

(Bro.)


What kind of Domain Knowledge do you possess? Identify all the areas where you have developed expert-level knowledge (niche, vertical, role, region, deep research). Where could you deepen your domain knowledge? What other industries or verticals are you interested in?

def. Founders present investors with a pitch deck that explains their company, including budget, marketing plan, and market research.

Remember that you should always do your own due diligence and not invest merely on the basis of a slick pitch deck.

Action Items

Definition | Pitch Deck

They shouldn’t be exactly the same - you want as much diversity in your investments as possible - but they need to be in your wheelhouse.

Everyone starts with a foundation of Domain Knowledge that you’re constantly building through your career and hobbies. So start there.


We all want to find a unicorn.

You know what I’m talking about? An early-stage company that goes on to a billion-dollar valuation.

Get in on the ground floor of a unicorn, and your whole life changes. Your $10,000 investment just turned into $10,000,000.

This happened at companies like Uber and Facebook, but everyone has heard of those.

What you might not know is all of the other unicorns out there: Juul, WeWork, Stripe, Heartflow, Carta, Coinbase, Instacart, Wish…

Any one of these companies would have turned your $10,000 investment into millions and millions.

7Secret #7 Look for a Huge T.A.M.

So how do we find our

unicorns?


Research. From cannabis to cryptocurrency, new trends and technologies are constantly creating new markets. Which ones get you excited? Take some time to research the trends and technologies you think could open up new investment opportunities.

Too smallGoldilocks ZoneBig and BeefyToo big

<$20MM$20 - $100MM$100MM - $1B

>$1B

Action Items

Total Market Capitalization (TAM)

One of the secrets I use when evaluating companies is looking at their Total Market Capitalization (TAM).

That number represents their entire potential market. No one company or product will be able to reach an entire market, but it gives us an idea of how big they can grow.

There’s a sophisticated strategy around TAMs, but the essence is: the bigger, the better.

Look for a TAM over $20 million. Over $100 million is even better.

This will give the startup plenty of room to grow.


Let’s say you’ve found a winning company.

Now what? Profit, right?

Not quite. First you have to close the deal.

There’s a long list of rights and provisions on the Term Sheet that the investors will negotiate with the founders.

One provision that I always insist on is Pro-Rata.

8Secret #8 Insist on Pro-Rata Rights

Pro-Rata rights guarantee investors a chance to reinvest in the company if it is doing well.

We call this a “follow-on” investment.

This is important, because in following stages – or rounds – of funding, our stock is going to be diluted. The company grows, so it’s worth much more.


Are you ready to invest? Talk to your financial advisor about your current investment portfolio and assets, and get your ducks in a row.

def. A non-binding agreement that investors and founders use to negotiate the terms of a deal.

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Definition | Term Sheet

However, if we’re guaranteed the right to invest a little more money and protect our slice of the pie, we can prevent dilution.

Pro-Rata rights come into play when you find yourself on a rocketship. They protect angels from VC funds who are trying to gobble up equity in the later rounds.


This is one of the best kept secrets in angel investing.

See, a lot of new angels think they need to invest a lot of money in each deal to make their investment worth it.

What ends up happening is that they overinvest in the first few deals that cross their plates, and don’t have the resources to keep investing in the better deals that come down the pipe later.

When it comes to investing strategy, I’m here to tell you that having more deals in your portfolio is more important than having a significant chunk of equity in each of those deals.

9Secret #9 Smaller Money, More Deals

It’s simple math. As angels, we want to hit at least 1 in 10 winners.

When I say winner, I mean more than 10x return on our initial investment.

But we really have no idea which of the 10 companies we’re investing in is going to break through.

Basically, if you have to

choose between investing

$10,000 in one company,

or $1,000 in ten companies,

always go with the latter.


Angel investing is high risk, high reward. Being a good investor is all about the right headspace. Take a moment to write down the last time you “failed”, made a mistake, or came up short in your personal or professional life. Then, make a list of everything you learned from that “failure” and any new opportunities that resulted from it.

50%40%10%

Loss1.5x to 10x Profit

>10x Profit

Action Items

Deal Outcome Percentages

Now, you might be thinking, “Nate, I found this amazing company. It’s definitely going to blow up. Why wouldn’t I invest all my angel money right there?”

Feel that confident? Good. That’s how you should feel about every deal you get into.

Still—even with bulletproof investments—only 1 in 10 is going to be a homerun.

Like I mentioned, angel investing is hard. Most startups fail. Which is why angel investors need a lot of experience - or some kind of powerful ally to help them succeed.

That brings me to my final secret…


This last secret might be the most obvious of all. But I’m always shocked at how many people roll into angel investing hoping to secure some fast and easy wins.

Let me be totally clear: anyone could be an angel investor. Anyone can get in on the ground floor of the next 1,000x upside.

But not everyone does.

And one of the things that separates the winners from the losers is how much work they put in.

There’s one big exception to this rule, which I’m going to get to in a second.

But first, just look:

• Building a Deal Flow takes work. You need to network, research, and broadcast your expertise to the world.

• Conducting Due Diligence takes work. If you’re not putting in 20-40 hours per company, something is wrong.

• Closing a Deal takes work. And for an inexperienced angel, it’s just not possible to do alone.

It took me years to build an elite Deal Flow, and I was already working with the best investors on the face of the planet.

But I don’t want to discourage you. You can make tons of money as an angel investor, and you don’t need to waste years of your life trying to get there.

How?

10Secret #10 Do Your Work (and Then Some...)


By using my New Wave Wealth system, which I’m sharing in a FREE training available only for my 10 Secrets students right here.

I’ll teach you my proprietary systems for building Deal Flow, sifting out the gold, and sealing the deal.

Check out the free New Wave Wealth training and start finding unicorns!

A 2007 Study found that angels who invested more than 20 hours into their due diligence saw up to 2x better results.

Action Items

Hard Work Pays Off


10 Secrets to Build Wealth through Angel Investing has some of the best tricks and tips I know for finding killer deals - and then squeezing the most profits out of each of them.

But it’s not a complete system. If you’re committed to learning that, you’ve got to check out my free training, where I break down my complete New Wave Wealth system - the world’s first proven system for mastering angel investing.

But before you do anything, just think about this: angel investing really works. It’s risky, yes, but every day, people are making fortunes off of smart investments. With a little hard work and a few connections, you can be one of them. Believe it.

Check out the FREE New Wave Wealth training right here.

Afterword

FREE TRAINING

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