Myth #1: All angel investors are mega-wealthy yacht owners

While in a conversation with a founder, the sentiment bubbled up that all angels are crazy wealthy yacht owners. At first blush it sounded like hyperbole and a cause for a good chuckle, but it quickly became evident the founder was dead serious.

We’re here to tell you the average angel investor in Minnesota is more reflective of your next-door neighbors, professional peers, or even ladies in mom’s groups. In Groove’s investor community—Minnesota’s most active angel network—we have professors, pilots, accountants, marketing and sales leaders, and of course founders, too.

Furthermore, some people think you need a massive amount of capital to angel invest. But that’s why we’re myth busting! While some initial check size requirements reach as high as $50,000, there are opportunities that allow for initial check sizes as low as $5,000, making angel investing more accessible than many initially think.

The caveat here is that venture math and the law of probability inform us that a broad and diversified portfolio is one of the best ways to de-risk. So, go into angel investing with a plan to build a portfolio over time. If you have $50,000 to invest, whenever possible, spread that out over five companies at $10,000 each. Stated simply, don’t spend all your money in one place.

Myth #2: Angels are thrill-seeking high risk takers

All investments involve risk. When looking at various investments, angel investing will be on the higher risk end of the spectrum, especially if you’re comparing it to your stock portfolio and bonds. However, early stage investors perform extensive due diligence on the startups they are considering. They often work in groups through angel networks or via early-stage funds to crowdsource more insight, aim to build an angel portfolio to diversity, and ensure early-stage investing is a small part of their overall investment strategy (likely somewhere between 5-10%). All of these are common practices and designed to mitigate risks as an angel investor.

So, while angels should be comfortable with the risk that comes with early-stage investing, it would be false to think they are reckless thrill-seekers.

Myth #3: Angels don’t care about your startup, they are just looking for a return

This sentiment is nonsensical. Investors are only successful if the startup is successful. It is in an angel’s interest to care about your startup. Most angels are continuously looking for ways to support the startups they invest in even beyond writing a check. This can look like making introductions, coaching, amplifying the startup’s story, etc.

While not all, many angel investors enter this space with a desire to make a positive difference in the world through innovation. They look to fund and support startups that address social or environmental challenges that align with their personal values. Overall, legacy and leaving the world better than they found it is a big driver for many angels.

Myth #4: All the best startups are in Silicon Valley

There are great startups in Silicon Valley; and there are great startups in Minnesota. If you don’t believe us, we would encourage you to revisit the history books. Fortune 500 companies have gotten their start in every corner of the United States. As a visual representation of this, take a look at this graphic created by Fortune: Each circle on the map points to the location of a company headquarters, and the circle’s size represents company revenue.

Source: Fortune, 2022

The caliber of startups in Minnesota punch above their weight. We love Minnesota startups because founders here are resilient, have been operating in a cash efficient manner well before this was a buzzword on the lips of every Bay Area venture capitalist, and valuations in the Midwest are often insulated from the wild inflation that we’ve seen in other markets. Who doesn’t love bargain shopping?

Myth #5: You lack industry experience, so you shouldn’t be an angel investor.

Industry expertise is not a prerequisite for angel investing. Sure, it helps, but a resilient portfolio requires diversification, making it rare one would have subject matter expertise in all fields. Never mind the fact that with the speed of technological and scientific developments, you will need to supplement your own knowledge with subject matter experts (you’ll hear this referred to as “SME” for short).

At the core, a successful angel is a person with a great deal of curiosity and learning agility. They have relatively strong business acumen and a great network allowing them to seek insights from others including industry experts. Angel investing is a team sport.

So, what are you waiting for?

The Minnesota startup ecosystem boasts a lot of great ways to get plugged in, if you are investor curious. Most notably we’d encourage you to join us at Twin Cities Startup Week, which is the superbowl of the startup space. Some key events to check out include 2024 MN Cup Grand Finale (Mon, Sept. 16), Angel Fest Fall Investor Rally (Wed, Sept. 18), Minnedemo (Thurs, Sept. 19), and so much more!