Ask Paul: Should we become angel investors?

Dear Paul,

We are 38 and 37 with two young children (seven and three).

After the recent sale of an investment property, we have a $78,000 mortgage on our fully renovated primary residence worth about $750,000. We have $110,000 invested in shares and already contribute extra to our super. 

Our combined income is $110,000 and we add regular payments to our kids' savings accounts for the future.

We've also doubled our mortgage repayments to pay the balance off within five years, and don't have any car loans, personal loans or credit cards. 

We don't want any more investment properties or to increase our mortgage, but we would like to do something exciting with our excess funds.

Is it worth looking at angel investing (angel investors provide financial backing to small start-ups typically in exchange for ownership equity) to help new business owners, or is there something else that we don't know about? - Deb

I read your question with great interest, Deb, thinking about what a great job you both have done to get your mortgage right down, with a plan to get it to zero and also regular investment for your youngsters. This is a great, conservative and pretty much guaranteed wealth-creation plan.

Then you throw in angel investing.

I get where you are coming from - you have done the hard work to get yourself into a secure position at an early age, plus, of course, your super will be growing.

So, you can afford to do something with more risk that also really interests you.

Angel investing, as I am sure you know, has really evolved. There are any number of angel investment groups and websites where you can invest quite small amounts.

The issue that worries me is that most of these online "connection" sites could see you investing with people or a company that in reality you know nothing about.

My obvious advice would be to start small. Preferably, I'd like to see you joining an angel investor group where you can meet those pitching for funds and stay close to your money.

I'm not against this at all, but if you are going to take "start-up" risk with your money, you need to feel comfortable with the business plan and the people.

Despite my best efforts in backing start-ups, my success ratio is pretty standard. Out of 10 investments, six fail, two break even and two shoot the lights out.

I think to be successful you will need to put in time, research and effort, and one thing is for sure: spreading your risk is really important. I would love to hear from you in a year or two about how you do if you decide to be an angel investor.

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