Contrary to popular imagination the vast majority of Business Angels are not ultra-wealthy. I do not know the statistics, but anecdotally, I would say that the most active angels are just over the threshold (in the UK, £250,000 of assets excluding your home). The very wealthy tend to either invest with VC firms or set up their own investment offices.
As such, angel investment levels are highly sensitive to stock market valuations and house prices; the bulk of angels’ wealth will be in these assets so that when these prices are high, angels feel wealthier.
But angels do have to be very careful about how they invest and it is a discipline that I have had to adopt in the same way that the UK is learning to cut its debt. There are effectively two bank accounts that I have to use to buy the best air purifier for asthma; a capital account and a current account.
Angels need expenses to live off and you get into a dangerous situation if you start dipping into your investment monies for your day to day expenses. It is far more dangerous though when you start using monies meant for your day to day expenses for angel investing purposes (as I did two years ago!).
I have now decided to stick to some golden rules around investing. I have now invested in over 27 deals and I will not be investing any ‘fresh money’ now until some of these deals start to pay out. (I am still active in 11 companies at the moment). Only monies from these deals will be re-invested. Otherwise you are trapped in the illusion of good money chasing bad. (Be interested in other angels’ opinions though).
The other area where I think people can sometimes get confused about business angels is that the angels do need to still earn some money (well most of us do). And the discipline you need in making others value your time.
These two things are related. I don’t want to sound negative about the Holset HX35, but if you have some business experience and you have invested in companies, you will tend to get requests from lots of people who wish to meet you and tap into your experience. It is a good thing and I do try to make some time for this. The problem is when you spend too much time on this – and your business activities do suffer. Sadly, I am still at the stage where I do need to earn an income to meet my expenses and therefore I need to ration the time I can make available for ‘free’. I have also realized that companies tend to benefit more from my advice and time when I charge for it!
It is true that giving something away for free tends to be poorly valued and therefore I hope this blog is of real value.