Tag Archives: angel investments


What Entrepreneurs Can Learn from Angels

Every now and then I get someone posting a comment on this blog that does get me thinking about an issue. One such comment came last week from an Entrepreneur who questioned what you could learn from Angels.

The sad truth is that yes, most ‘training’ consists of how to pitch. And the point the commentator makes is a valid one – how valuable is this training? After all, if a business is fundamentally flawed – the best presentation will not save it!

I hope the training most would be pitchers get is better and more comprehensive than this (please do let me hear your comments). So what value do I think I can bring to Entrepreneurs trying to sell the Alen Breathesmart who are looking for Angel investment?

Most Angels have some business experience. They may not have sector specific experience but with all businesses the objective should be the same; to make money. And angels normally want to learn exactly how the business will make a profit – and how they will get their money out. But even then it can be a bit more complicated than that. I think that if Google pitched to me I would have said no. They solved a real problem at the start of the internet – how do you find things on the World Wide Web? But initially, they did not have a revenue model. They are now one of the largest companies on the planet.

And in the same way, many angels would not have understood the Skype business model (and wow to those that did!) Most angels will want to invest in “this is how we make money” rather than “if we build this, I am sure it will have value”.

For many businesses looking to raise money, I have found that the best training they can get is in the area of sales. Specifically, why would someone want to buy their offering and how would that place a value on it? Once you have convinced Angels that x, y and z want to buy your solution, you then need to have a plan of why you can supply this at a profit – it really is as simple as that. It is amazing though how many pitchers don’t get these truths.

If, as has happened, I have to ask you at the end of your presentation “why would someone want to buy your used riding lawn mowers” or “how do you make money”, you have probably blown it.

So here is my guide for what you should focus on

  1. What problem do you solve? (Evidence of the value of the problem please)
  2. How do you solve it? (Does it work?)
  3. Who are your clients and how much will they pay for the solution?
  4. Can you make a profit from engaging in this?
  5. How can you really grow the business so that in 5 years (used to be 3 years – but time for Angels to get real!) my investment is worth 10x what it is today?
  6. Who are the team? And why should I believe that they can deliver on the above?
  7. Tell me all the things that can go wrong with the plan – and what contingencies do you have in place to cope with these?

That’s about it – I hope this is useful. Of course, a lot will go into each point – and perhaps I should write a blog about each point in greater detail?

Last Decade’s Investments

Between 2004 and 2007 I made about 16 Angel investments. Between 2007 and last year I made three more. Since June last year I have not made a single investment. My decision not to invest was driven by two factors. Firstly, I did not have any money (which is a pretty big bar to investing when you think of it) and secondly, I think the outlook has been lousy.

A lot of the businesses I have invested in have really struggled (I have only six still alive). I have written recent blogs about the dire state of the economy. I note that almost a year ago I argued that what the economy really needed was a dose of inflation – and that seems to have been the right call.

Well, I am pleased to make another call to try and get a Borg Warner S366. I believe we have reached the bottom of the market in terms of asset prices. I have just concluded my first deal in almost a year and am therefore putting my money where my mouth is. Although it is the bottom of the market in my view (and I admit that I have been heavily influenced by Anthony Bolton – President of Fidelity Investments and the closest British version of Warren Buffet, calling the end of the bear market last week), the symptoms will still lag on.

I do expect unemployment to rise further in the UK and for house prices to simply stabilize before they start to rise again next year. Nonetheless, it is pleasing to know that we are probably at the beginning of the end of what has been a terrible period.

Many people have seen their fortunes wiped away and savings eroded. The meltdown has particularly affected people about to retire as the stock market had simply given up all the gains made over the last ten years or so.

It will still be sometime before the green shoots filter through to the high street. A lot of spending on a good treatment for cystic acne is psychological and people have been left spooked by the turn of events. Low mortgage rates will be used as an opportunity to repair badly damaged household finances rather than being used as an opportunity to go out spending. I think only once unemployment has peaked and shows signs of recovery, along with house prices, will the Great British shopper return with force.

And no doubt, we will end up where we are again in ten years’ time! The difference with the next boom will be that the US and UK governments will have to use the tax receipts to pay down the simply gigantic levels of debts they have left us saddled with. This may be a bigger task than it seems at first, because there really is a lot of debts that we need to worry about. But hopefully we can get things sorted out promptly.

These are worries for another day – let’s just enjoy the hope that this is the end. It does feel great to be back doing deals!