Angel Investors from the Entrepreneur’s Eye: Harvesting

This post concludes my series of blogs on my reading, Winning Angels: The Seven Fundamentals of Early-stage Investing by David Amis and Howard Stevenson. Which brings us to the last and final fundamental of early-stage investing, harvesting.

For angel investors, the harvest is essentially the exit.

When I sat down to write this blog, I was not really sure which way I wanted to take it. Per usual I really want you as the current or future entrepreneur to understand how to look at this fundamental in a way that benefits you.

In my external reading I found an article by Venture Giants (VG) that posed a great question. “What would be your answer if an Angel Investor asked you how he/she could exit from your business angel investment in the future?

VG suggests that you should already know the answer to this question before you even throw your elevator pitch at a potential angel investor. I agree. How an angel investor is going to exit can affect the entire deal.­ Think about it, if this fundamental is part of the reading for angel investors, then it is understandable that they would want to know how it is all going to play out for them in the end…from the beginning. They will expect to see an exit strategy according to VG. You as an entrepreneur should also have a fine understanding of harvesting and the exit from where you stand and be sure that you and the angel investor are on the same page.

Angel investors will not only want to know the how of the exit, but also the when, the how long. You should also have a good idea of what your growth potential and plans are when you are calculating the “how long”.

There are several different exit opportunities that you can offer to your angel investor. Will you want to sell your company? Perhaps a partial sale. There is also the option of an initial public offering or IPO or stock where you would take your business public, to name just a few. There are also negative harvests and exits, such as a bankruptcy or what Amis and Stevenson refer to as, total annihilation. I think it is very important for entrepreneurs to understand the many different outcomes and possibilities before they even have an initial meeting with an angel investor. Knowledge and education is key and it is pertinent that you are realistic in what the future could be by doing all of your research, getting the numbers, and really having a road map of what your venture looks likes from every single angle.

I would recommend looking into Venture Giants article as there are some great links to other articles that will help you to craft an elevator pitch as well as provide info on looking at your growth strategy and expansion.

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

What is your proposed Exit Strategy for an Angel Investor? (n.d.). Retrieved from Venture Giants: https://www.venturegiants.com/news-channel-344-what-is-your-proposed-exit-strategy-for-an-angel-investor.aspx

Angel Investors from the Entrepreneur’s Eye: Supporting

This is the second to the last entry in my series of blogs on angel investing. I have been nose deep in Winning Angels: The Seven Fundamentals of Early-stage Investing by David Amis and Howard Stevenson. This particular installation brings us to the sixth fundamental of early-stage investing, supporting.

Angel investors can provide more than just financial support via capital investments. Supporting takes into consideration what level of participation or role an angel is to play in an investment deal. This is where it can prove important for the angel investor you are working with to have experience working in your industry or working with similar ventures. According to authors Amis and Stevenson, some investors seek out and choose opportunities that need a lot of support, and then take on participation roles that address the needs and wants of you, the entrepreneur, your business, and themselves.

What I found odd in this section is that Amis and Stevenson talk about the “five” participation roles in Chapter 43, but they actually list six roles. Nevertheless, what I really want to deliver to you is the short and quick on what support angel investors can provide for you, the entrepreneur. In my reading and research on the particular fundamental, I found an article by the IESE Business school on Entrepreneur about the six supporting roles which lines up directly with Amis and Stevenson’s work.

Silent

A silent investor makes their financial contribution and stays out the way with no involvement. This type of investor will support you in a monetary manner but will keep their hands out of your business while they wait for their return on investment. For entrepreneurs who want to keep control of their business, working with an investor who plays this role could be very beneficial.

Reserve Force

The reserve force investor will step in where needed and will help you when you ask for their assistance and support. Otherwise these investors will be waiting in the wings.

Team Leader

Angel investors that take on the lead of team leader are very active and can take on a full or part time role. Here, you have to be careful as a business owner as investors can become overbearing or begin to micro-manage especially if the investor has a huge investment in your business.

Lead

The lead role is taken on by an investor that either contributes the majority of capital or if they bring other investors in after them. A lead investor can have a heavy influence on other investors joining in. It is very important for you to understand who your lead is as they have a major impact in a lot of areas.

Coach

An angel investor that takes on the coach role will mentor the entrepreneur. Amis and Stevenson say this is the highest impact investor who does not actually control the company. I feel that this type of investor could prove beneficial for small business owners. They will give advice and support to the entrepreneur but remain on the sidelines.

Controlling Investor

A controlling investor will take control of the deal and in managing the company. An entrepreneur that wants to have control of their company would never want to enter into a deal with an angel investor looking to take on this role.

From the entrepreneur’s standpoint, it is very important for you to understand the different roles that an angel investor can take and even more important for you to make sure that you understand what role the investor you enter a deal with is going to take in your business.

 

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

School, I. B. (2015, 10 16). The Seven Secrets Of Top Angel Investors. Retrieved from Forbes: https://www.forbes.com/sites/iese/2015/10/16/the-seven-secrets-of-top-angel-investors/#6b30ee256eae

 

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