Angel Investors from the Entrepreneur’s Eye: Evaluating

“In both entrepreneurship and angel investing, there is nothing like doing it.”

To be completely and utterly honest, Winning Angels: The Seven Fundamentals of Early-stage Investing by David Amis and Howard Stevenson has been a hard read for me. I have personally found it to be very hard to get into. However, I am all about trying to stay positive and take something away from a journey, even if it’s not something I am 100% interested in. I also want to make sure that any current entrepreneur, future entrepreneur, or student reading my blog can still gain some sort of benefit from reading my posts. That being said there are also some points and takeaways that I think are very read-worthy and interesting.

This blog post is in response to the book’s second fundamental on early-stage investing. Evaluating.

In my reading of articles on angel investing, there is an overwhelming consensus that one cannot, with great certainty, tell whether a venture will be successful or a total flop. Well, of course not. However, with experience and attention to certain pertinent elements, investors can make educated decisions and moves. What does that mean for us, the entrepreneurs looking for capital? As I mentioned before, it is so important for us to understand both sides of the coin so that we can be ready and set to display and provide what it is that successful and willing angel investors are looking for in the evaluation phase.

“It is extremely important to do your own due diligence…there are a lot of people who can write a $100k check without thinking twice.”

According to Entrepreneur VIP Contributor, Murray Newlands, there are five things that an investor wants to know before signing a check.

1. They want to know your numbers, your business’ financial performance. Entrepreneurs should be prepared to not only present and provide numbers, but also be able to explain them and answer questions on the data.

2. They want to see that you have background and experience in your industry. They are interested in the You, the entrepreneur and the important figures in your organization. Emeritus Professor William Sahlman of the Harvard Business School developed a framework, The Harvard Framework, that focuses on a few different elements that angel investors should focus on in the evaluation phase. He argued that most business plans spend a ton of time on the numbers but did not spend enough time on what really is important to investors, the people.” He said, “When I receive a business plan, I always read the resume section first. Not because the people part of the new venture is the most important, but because without the right team, none of the other parts really matters.”

The “people” part of the evaluation step, is what really caught my interest. It is so important for us as entrepreneurs to understand our strong points, what we have to offer, and also where we need to grow to be the very best. The entrepreneur’s personality is just as important as the product, in my opinion. In many cases consumers fall in love with a brand or a company because of the people behind it. Being able to connect with others is very important as an entrepreneur. We should also be able to express and articulate our ideas, show our passion, and be both kind and honest. If you don’t believe me about personality being important to investors, just watch a couple of episodes of Shark Tank on ABC. The “sharks” get really disgusted by entrepreneurs who have a horrible way of dealing with others or who are rude during the presentations or Q&A. If people do not like you, it may not matter how AMAZING your product is, they will not want to deal with you or invest in your plans and ideas.

“An A-quality man with a B-quality project, but not the other way around.” -General Georges Doriot

3. Your company and your ideas should be unique. By being able to prove that your products and business have concepts that set them apart, that you have differentiators and competitive advantages, you can help an investor see the value in signing that check and taking that chance on you over someone else.

4. You should have an effective business model that makes sense and is feasible. Your business plan should be a solid one that answers the important questions. It should address market specific topics and show business opportunity. Is your business scalable, is there growth potential?

5. It is not unusual for angel investors to go after ventures that provide solutions for problems in larger target markets, according to Newlands. This is where having a competitive advantage and solid branding comes in. If the market is large and you can have a big significant impact in the market, then investors will see the value proposition at hand.

With these thoughts in mind, where can you grow to help people want to invest in you, your product, and your future?

Amis, D., & Stevenson, H. (2001). Winning Angels: The Seven Fundamental of Early-stage Investing. Pearson Education Limited.

Newland, M. (2014, June 5). 5 Things Investors Want to Know Before Signing a Check. Retrieved from Entrepreneur: https://www.entrepreneur.com/article/234536

Torres, N. (2015, 06 August). What Angel Investors Value Most When Choosing What to Fund. Retrieved from Harvard Business Review: https://hbr.org/2015/08/what-angel-investors-value-most-when-choosing-what-to-fund

 

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Miles
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Miles

Hey Natalie,

The way you started out your blog was great and intriguing to read. I thought you perspective was important to not and the ability of your comprehension was important to note as well.

Murray Newland’s guidelines towards investing and the steps that an investor should take were interestingly insightful. I believe that much of what Newland believes is something that I can easily find myself being able to apply to future investment strategies to build my portfolio.

Dexter Robinson
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Great job Natalie! I appreciate your five takeaways, but number two jumps out to me the most. The numbers definitely matter, but the people matter more. A strong team is integral to success. Having the materials to build a house, and a team with no one who has ever built a home could be a long process right? Remembering that the “You” is just as important is the numbers, if not more, is a major key. Thanks for sharing, and as always I appreciate the additional resources.