What’s A Smart Angel?
A: An Angel that keeps true to their objectives of why being an Angel. Meaning that you follow through with how you want to accomplish the what (you want to accomplish). This will mean different things to all of us, the most common reasons for becoming angel is, in no particular order;
- earning a better (& riskier) return than found elsewhere (perhaps this is a part of you balancing your portfolio);
- engaging with like minded people,
- giving back to entrepreneurs through funding them or mentoring them or working with them on daily operations,
- giving back to the local community by supporting employment growth and innovation,
- living vicariously through the companies you invest in,
And what is your investment sweet spot? A certain industry, a certain type of company, social enterprises, bleeding edge technology, leading edge technology, revamping mature industries….?
A common challenge for first time Angels, and even some of the seasoned ones, is getting caught up in the excitement of the opportunity and jumping (blindly or with welding goggles on) with little to no due diligence. This can be a hard lesson to learn.
You should always expect passion, enthusiasm and commitment from all entrepreneurs. If not, why are they their pitching to you? This is the basic ante Angel investors expect when Entrepreneurs to come to the table to present their product or service.
When an Angel investor’s interest is piqued by the entrepreneur’s idea then there are a number of things the Angel now believes, any combination of these, to warrant a deeper investigation:
- there is a valid problem to be solved or gain to be realized by the target customer,
- there is a sufficient addressable market,
- prospects will pay for the solution,
- there is a defensible product,
- other things such as you believe in the entrepreneur * can also sway your decision to move forward.
The Angel’s next step is due diligence or DD. What do we want to measure?
There are many due diligence checklist, and number of them have been posted here for quick reference. They range from a few pages to lengthy books.
The DD checklist are a tool toassist in validating the company’s claims, to find where the blind spot is in the company’s plans and assumptions; similarly with the founder(s) and their board / advisors; is there another target market or related revenue stream that can be tapped. The dividing up the DD effort makes great sense.
What about the personal interaction with the entrepreneurs / founders; what shall we be looking for in them?
Measure their alignment with the investors, their fit in the industry they are operating in and their follow through with commitments, meeting milestones and are they open and willing to learn and be coached. No entrepreneur’s business plan rollout 100% as planned there will always be unanticipated hurdles and this is where the entrepreneur and his/her team need to shine. Are they capable to shine?
In the early days of the DD you can measure the entrepreneur(s) capability by how quickly they respond with the requested information, to the challenges you pose to them and how detailed their answers are. If their DD package is missing key pieces than this could be a red flag.
As one Angel stated after decades of investing “If it is a screaming Yes, then I invest; otherwise, it is a screaming No! and I walk away”.
To summarize, define what you what to accomplish, how you want to accomplish it, where you sweet spot is and take your time. Unless you are alone wolf strongly consider finding other Angels to share the work load, leveraging theirs and your past experiences, and try hard to not lower your standards and just go along with the crowd. If you do you may be doing more than throwing your hat in with other respected investors without doing your due diligence. Watch out for that herd mentally, it can be a strong magnet.
* One Angel invested based on the team such that when they failed at their first business the Angel kept up the support, provided additional funds for their second and third ventures which are now starting to pay dividends. This Angel believed strongly in the people and that they were going to succeed.