Angel investing can offer significant financial rewards and a great deal of personal satisfaction and interest at being part of a young company’s success story. Admittedly, it is a high-risk, high-reward form of investment, but for angel investors who spot what they think could be a winning business idea, the chance to hold a stake in a potentially fast-growing enterprise and meet interesting entrepreneurs, while diversifying their portfolio, can be a great opportunity.
In this blog, we will look at some practical tips and strategies for angel investors and family offices who hope to put their finger on ‘the next big thing’:
- Assess revenue streams – research should be the cornerstone of an angel investor’s activities, and one area to keep a close eye on is revenue streams. A young company should have a demonstrable method of making money. If they are at a developmental stage and haven’t made any money yet, they should still be able to exhibit a detailed strategy with which to do so.
- Look for a competitive edge – if there are organisations which could constitute serious competitors for a start-up, what edge will the young company have over them? Look for convincing unique selling points for any start up which is involved in a market space that is already inhabited.
- Analyse the personnel – the actual execution of a business strategy will be pivotal to its success. For this reason, angel investors cannot do enough research into the people who make up a start-up. Do they have the skill sets required to fulfil their ambitions? Are they sufficiently motivated to persevere when the going gets tough? And can they effectively communicate a clear vision for the future?
- Study all the financials closely – the thoroughness and accuracy of the financials presented by a start-up are perhaps the biggest indicators of its ability to deliver on its objectives. Scrutinise these figures closely, and be prepared to question any holes in financial planning, before considering the responses to these queries carefully.
Gérard Cohen, the noted Monaco banker, has underlined the importance of committing time to research start-ups and their backgrounds: “It appears there is a direct link between the amount of time angel investors and family offices devote to studying business propositions, and the eventual return which they receive on investments made. It cannot be emphasised enough just how imperative it is to conduct due diligence, and go the extra mile in terms of evaluating the information surrounding a start-up and their model.”
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