Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 266

Five tips for better startup investing

While angel investing groups have been around for decades, it has become easier in recent years to connect angel investors directly to entrepreneurs using online platforms. As a result, there is less interference, fewer restrictions and bigger opportunities. While many angel investors boast great success stories, there are also lots of ways to lose money.

There are some important steps to making good startup investments. Many angel investors never consider that they play a role in the outcome of their investment. At my company ZipBooks, our initial outside funding was led by a venture capital (VC) firm, but we consciously included angels based on the value they would bring. I’ve seen the process up-close, so I have some ideas about what works and what doesn’t, what’s helpful and what isn’t.

Here are my five top tips for angel investors, because when investors and entrepreneurs work together, the chance of success is so much greater.

1. Look for companies that know how to pivot when it’s time

Pivoting, or changing course in order to take advantage of a better, previously unseen or ignored possibility, is a huge benefit that startups have over big corporations. Smaller businesses are more agile and can pivot with a lot less risk, with upside for reward. Angel investors need to look for businesses that either already have a great track record of being able to pivot, or for businesses with the opportunity to do so right now.

By bringing in a fresh perspective, you may help direct a course down the most-likely path for success. Imagine if you were an investor in Twitter or Slack before they made their big pivot - where would you be today? ZipBooks started with free software before pivoting to a premium model with additional services to drive more revenue per customer. You should only invest in a company that is open-minded enough to consider a pivot. A company too set in its ways may not be the best place to guarantee a return on your money.

2. Be diligent in your due diligence, but within reason

While it’s easy to understand you want all of the information you can get your hands on to make a smart investment, there’s a point in the due diligence process where you can go too far. Although entrepreneurs should be happy to answer questions, pulling at every thread and guessing what might happen will deteriorate the relationship you are trying to build.

3. Take a cue from Shark Tank and invest in people

The Shark Tank programme often features a business that is so-so but they still get a great deal. You’ve also probably seen a great business, one with all the right numbers and a super smart strategy, totally tank. Why? Because savvy investors recognize the power of people. When a person has conviction and determination, when they have a story that makes you listen, when they wake something up in your gut that tells you to trust them - you probably should. People are what make or break businesses. And, when you have a feeling that the person behind a company is someone that is going to succeed, it often turns out that way. Nothing is guaranteed when it comes to investing, but in startups, you can guarantee that if the people aren’t right, neither is the investment.

4. Be involved, but keep your hands off the wheel

As much as I’m sure you love the idea of being the biggest asset to the business, most companies don’t really need all that much help. Lack of capital, which is where angel investors like you come in, is typically the biggest barrier entrepreneurs need help overcoming. So, while you can offer sage advice and unique perspective, don’t become involved in everything that’s going on inside the business. If you’ve made a smart investment, the company really isn’t going to need much of your help.

5. Don’t count on one investment being enough

In order to maximize your investment return, you need to take a diverse approach to angel investing. The most successful angel investors have a portfolio of businesses in case one of the investments turns out to be a dud. While there are always stories of one-and-done successes, the chances are as likely as overnight success or an entrepreneur’s first business being the only one he’ll ever need. If you want to ensure you’re being a smart angel investor, spread your funds around. This means that if you don’t have enough money to invest as an angel in a few different businesses, it might not be the right time now.

 

Jaren Nichols is Chief Operating Officer at ZipBooks. Jaren was previously a Product Manager at Google and holds an MBA from Harvard Business School.

  •   6 August 2018
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

Private equity’s role in a well-constructed portfolio

Being Jon Medved: three decades of start-up investing

How to invest in early-stage tech businesses

banner

Most viewed in recent weeks

2 billion reasons to fix retirement income

A proposal to address Australia's 'stranded balances' in retirement by requiring super funds to transition members to pension phase at 65, boosting retirement income and reframing super as a source of income.

The ultimate superannuation EOFY checklist 2026

Here is a checklist of 28 important issues you should address before June 30 to ensure your SMSF or other super fund is in order and that you are making the most of the strategies available.

Noel Whittaker’s take on the budget

Marketed as a fix for inequality and housing affordability, the latest budget instead delivers a tangle of tax changes that leave everyday Australians worse off.

Australia has no death duties. Technically.

Australia may not levy formal death duties, but a growing web of tax measures is quietly shaping what wealth passes between generations. Now, the 2026 budget adds another layer.

Welcome to Firstlinks Edition 662 with weekend update

The debate over the budget is increasingly shaped by frustration and perceptions of unfairness, rather than clear-eyed assessment of policy outcomes.

Two months into retirement

A retirement researcher's take on retirement and her focus on each of her six resource buckets to stay engaged during the transition and beyond.

Latest Updates

Investing

Markets without a margin for error

From US fiscal pressure to China’s shifting growth model and Australia’s structural constraints, markets are yet to reflect a less forgiving global investment landscape.

Investment strategies

The investment mistake killing your returns

Retail investors face an increasingly complex product environment, but simplicity may be the most overlooked advantage in building a portfolio you can actually live with.

The ticking clock on oil reserves

A sustained disruption through the Strait of Hormuz is forcing a rapid drawdown of global inventories. Without a resolution, the arithmetic points to a supply shock by early August and a sharp surge in the oil price.

Infrastructure

Managing the impact of the Middle East conflict on listed infrastructure

The outbreak of conflict in the Middle East in February 2026 marks an historic shock for oil and gas markets, with major implications for inflation, interest rates and ultimately for listed infrastructure companies.

Economy

Rent inflation and the missing policy

The government plans to remove negative gearing to help renters buy homes. For those who remain renters, the wrong levers are being pulled to try and increase rental unit supply.

Investment strategies

The Risk-Wealth Paradox: Why more money means you should take less risk

As wealth grows, so does the assumption that risk should too. But in reality, the opposite may be true: once you understand how the value of money changes over time, the case for taking less risk becomes far more compelling.

SMSF strategies

SMSF estate planning: Eight things to consider

As super balances grow, SMSFs are becoming central to retirement outcomes. Without proper planning for “Armageddon” scenarios, even well-structured funds can unravel when it matters most.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.