Angel Investing – Hard Choices or Hard Times
Posted by Dr. Earl R. Smith II in Venture Capital, tags: adviser, advisory board, angel investor, board of directors, CEO, chairman, coaching, consulting, director, earl r smith ii, earl smith, Executive Coaching, federal circle, federal contracting, funding, Governance, government contractor, investing, investment, investor, Leadership, leadership assessment, leadership coaching, leadership development, leadership styles, management assessment, managing partner, Personal Growth, the federal circle, turnaround, Turnaround Management, Venture CapitalDr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com
The reaction to my two prior articles in this series has reinforced my view that angel investors often, by their own tendencies, can make it less likely that their investments will prove profitable. In Angel’s Sins, I outlined some of the mistakes that early stage investors make. In Angel Investing – Governance I described how many investors overlook the contributions that a professional, independent board of directors can make. I have received quite a few responses from investors – some that contain tales of woe and loss while others invite me to ‘get involved’ in an effort to salvage what can be of a lost situation. I don’t much like these latter invitations – too hard on the digestion with little to show. Treating sick puppies may be necessary but this series is about preventive approaches.
The message that I deliver when I speak to groups of early-stage investors is that they have to look to their own tendencies. Physicians heal thyself! Their options are hard choices or hard times. If they don’t take a firm, focused and demanding approach to setting and enforcing the terms surrounding their investments, they turn the whole process into a rolling of the dice – and that is more like gambling than investing.
Most angel investors seem to approach the process with a kind of ‘grandfatherly’ attitude – or, perhaps, like a ‘rich uncle’ who is supporting the ‘younger generation’ with their favors and support. The damage this ‘gentle’ and disconnected approach can do is hard to overstate. Life understandings are ‘softened’ and rendered formless. Understandings that might support a career of success and accomplishment are turned away – and the result is failure where success should have been.
If you are getting the sense that this article is more about the negative impact on the recipients of angel investment, you are right. I have seen this benign neglect and ‘grandfatherly’ soft-soap ruin both businesses and careers.
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Lies by Yevgeny Yevtushenko
Lying to the young is wrong. They know what you mean. They are people too. Say obstacles exist they must encounter, sorrow comes, hardship happens. Forgive no error you recognize, it will repeat itself, a hundredfold and afterward our pupils will not forgive in us what we forgave. |
Yevtushenko is saying something important – something angel investors should have tattooed on the inside of their eyelids. It’s not just that business is difficult to get right – not just that only one in ten start-ups make it to their fifth anniversary – not just that most CEOs may understand the business of their business – it is that these CEOs don’t understand the business of business – and the very people who could and should be teaching them the need for discipline, veracity and focus and exacting attention to detail – are smiling benevolently like some Cheshire Cat.
I am not one out to change the world, as we know it. I have long ago come to the realization that people are not going to change. My work with early-stage investors focuses on getting them to accept the need for effective, direct and often stiff adult supervision. In my book Amazing Pace: Turbo-Charged Business Development, I describe how this adult supervision can be arranged for the business development process.
In my writings about governance and oversight, I have focused on demonstrating how important a professionally organized board of directors can be in determining the future prospects of a company.
When I write about my advisory work with CEOs, I argue that the kind of direct and firm guidance that an experienced serial entrepreneur can bring to the table provides a template for the aspiring entrepreneur. It also supplies the demand for accountability, veracity and a commitment to results that goes well beyond the verbal.
Failure is a much sadder tail if it is the result of indifference, missed opportunities and regrets for what might have been. Investors advance their own interests by making sure that there is a firmness – even forcefulness – in the mentoring of the CEOs and management teams they have invested in.
© Dr. Earl R. Smith II
Related Articles:
- Angel’s Sins
- Angel Investing – Governance
- Gap Analysis
- Executive Coaches as Mentors and Advisors
- Reflections of a Coach
- Team Coaching – Building Value by Unlocking Potential
- My Executive Coaching Perspective
Dr. Smith is Managing Partner of The Federal Circle. The Federal Circle partners with teams and existing companies. We help them up their game and win big in the Federal space. We also arrange funding for acquisitions and expansion by acquisition. Our model is based on the belief that, if you select the very best and work with them in a highly professional and focused manner, the results will be truly amazing. He is the author of Amazing Pace: Turbo-charged Business Development – a book that shows how Advisory Boards can dramatically increase revenue. Dr. Smith is also the author of Dream Walk: Parables for the Living – a book of Raven Tales and exploration.
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Mr Smith, Generally, Both Angels & VC, what is mimumum amount they may consider investing ? average time for investment of their money ? minimum return on investment eg 15% they would like ? thank you, Imran Hameed
Very good questions Imran – and I wish I could give you good answers – but there are none that I have found. I have seen angel investors initially put as little as $5,000 into a start-up. But that is very rare. They need to have a big enough investment to make it worth their time and support. Most angel investors these days are shy of pure start-ups. They prefer companies with an established team and revenues. Their preference is for a team that has proven their value proposition by actually getting customers to pay for it. Most angels will require that they own most or all of the equity initially and gladly provide for an ‘earn-in’ by the team. Angel investors need to see a path to a venture financing as this is their most likely exit. Hope this helps.
Ok, our company is a startup, with new technologies and ideas that can really change many things and three business models that work.. Now what?? How do we contact business angels?
Juan, Angel investors seldom put money into “technologies and ideas” – they prefer investing with founders who have demonstrated that they can turn such things into a going business. My advice to you would be ‘go out and find some clients – people who are willing to pay for your technology and ideas.’ The memory of the bubble and bust is still fresh with most angel investors – indeed with most venture capitalists too. All have a strong preference for investing in teams that have demonstrated capabilities to implement and generate revenue/profit. Once you are at that stage, I would Google for angel investors in your area. They are generally easy to find. But remember, don’t present to them until you have a going business. If you present too early you will be branded as a waste of time. Angel investor communities tend to be tight knit – they talk to each other all the time. Your reputation will quickly get around. Hope this helps.
I have pitched my search for funds to a Venture Capital guy who liked my business and product but said I was not a good fit for Venture fund because me lead time to cash flow was to long (9 months).
Then I pitched to another who said he would work with me and that he believed I would do well in front of an Angel group.
No one talked about what kind of returns they would need. As I see it a Venture Capitalist and a Angel Investor are the same thing. Could you tell me what am I missing?
Best Regards,
John Geisler
Ps: On the subject of a Board of Directors. I worked for Lear Corporation and the CEO took that company from $72 per share to less then $2 per share and into bankruptcy. That board never moved to toss the dummy out.
John, angel investors are generally early stage players – they tend to invest in start-ups and focus on the technology or the value proposition behind it. Most of them pick an opportunity because they believe in the CEO or founder. An angel investor is usually investing his own money or the funds of a group of angel investors. Venture capitalists come on lots of versions. Some invest in companies that have a relativity short history but have managed to generate a profit. Others prefer mid-market companies with run rates in the twenty to two hundred million dollar range. Still others focus on management buy-outs or leveraged buy-outs. Their common characteristics are that they are heavily ROI focused and are investing funds provided by institutional investors such as pension funds. VCs tend to be more professional – angel investors often spend a lot of time coaching young CEOs.
I found your articles very helpful. I have worked with small busiiness for over 20 years and have insisted that the businesses have at least a voluntary board, and that is usuallay a challenge. But once the that voluntary board is in place, taking them to the next level seems much easier. A good Management team and Board of Directors. can then do their work and move the business forward at an accelerated rate.
I will pass your articles on to some of those I work with.
Regards
Russell Schmidt
100to1.net
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