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

The strange effect of the 30% minimum capital gains tax

The 30% minimum tax on capital gains sits at the heart of the budget's proposed reforms. Yet the mechanics reveal anomalies that introduce unexpected distortions that raise questions about its design.

High quality businesses are on sale

Beneath the dominance of the ASX's largest stocks, much of the market has been left behind. High-quality companies are now trading at levels rarely seen, offering opportunities for investors willing to look deeper.

Does your will qualify for the discretionary testamentary trust exemption?

Treasury has confirmed the exemption many families were hoping for. But buried in the fine print are two conditions that could leave some wills on the wrong side of the exemption, despite years of careful planning.

Ranking three common retirement strategies

The defining challenge of retirement isn't just about building wealth, it's about converting your lifetime savings into sustainable income. A holistic understanding of different strategies can improve long-term outcomes.

Welcome to Firstlinks Edition 667 with weekend update

The downfall of the giant and three lessons for investors.

  • 18 June 2026

Why Australian shares are falling behind the world

Australia’s market boasts a long record of outperformance, but recent results tell a different story. Is the ASX’s lagging performance a temporary setback or evidence that structural forces will keep global markets ahead?

Latest Updates

Superannuation

Are you making these SMSF mistakes?

After four decades advising investors, there are a few common mistakes I've seen SMSF investors make. From holding too much cash and chasing yield to overtrading and trusting tips. Are these errors costing you?

Retirement

Retirement spending is not one-size-fits-all

New data challenges the idea that Australians are underspending their super. The bigger issue may be helping retirees navigate complexity, make confident decisions and use their savings to support security, wellbeing and choice.

Taxation

The missing link in the CGT debate

A little-noticed consequence of Labor’s tax changes could have implications well beyond investors’ tax bills. The issue raises bigger questions about incentives, capital allocation and the drivers of long-term economic growth.

Investment strategies

The surprising beneficiaries of the AI boom

While markets obsess over AI winners, a larger, more predictable growth engine is forming. A surge in electricity demand and infrastructure build‑out reveals the quiet, durable assets evolving beneath the AI story.

Superannuation

When losses in super become irreplaceable

The notion of 'you can afford more risk' assumes that losses can be replaced. Above a $2.1 million super balance the law says otherwise, and a worked example shows the refill takes decades, or never happens.

Retirement

Why I object to ‘hitting a number’ for retirement

Many investors dream of “hitting their number” and walking into retirement. But what if reaching that milestone is the moment they should be asking the tough questions? After all, there's a lot more to life than a high portfolio value. 

Planning

Does your will qualify for the discretionary testamentary trust exemption?

Treasury has confirmed the exemption many families were hoping for. But buried in the fine print are two conditions that could leave some wills on the wrong side of the exemption, despite years of careful planning.

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.