Asking a business team to consider an “exit strategy” before they’ve proven that their business idea works can lead to wishful thinking, with less foundation than the high growth sales forecast that precedes it. Here are six reasons why many companies and investors are wary of “exit expectations”; high growth start-ups take note – forewarned is forearmed.
In the last year a new term has started to appear in the USA and occasionally in the UK: Super Angel. Why are Super Angels different from Angels? What marks these people out as special? What have they done that Angels haven’t? Is a Super Angel a person or a fund? The definition of Super Angel is evolving; in this blog we look at the current state of play.
Reading through various reports and articles the term Super Angel is used but not often defined. Doing some research I found the following definitions:
- Richard Harrison, Colin Mason, Donald Smith (Researchers, UK): Super Angels are individuals who have made at least five investments.
- Richard Sudek (Tech Coast Angels, USA): Super Angels are individuals who have made at least 50 investments.
- Lee Weinberg (Tech Coast Angels, USA): “The term “Super Angel” should really only refer to an individual human angel investor who spends his/her own money.”
- Chris Hobbs (Tapit Partners, USA): “We use the term Super Angel to describe a class of investors who have seen enormous success–in reputation if not yet financially. They all started as angels and now most have raised small funds. They continue to invest in mostly the same style, but they are smaller than most contemporary venture funds.”
- Elad Gil (Investor, USA): Most “super angels” typically have the following characteristics: (a) small institutional funds (this was not always the case, but is today) – $15M to $17M; (b) will invest $x00,000 to a million or so in a given round.; (c) may take a board seat; (d) provide introductions, strategic advice, etc.; (e) will pull together a broader syndicate for future funding rounds; and (f) started off investing their own money, then raised a fund to scale investments.
What interests me is that all these definitions focus on the ability of the Super Angel to put funds into companies. There is no thought about the demonstration of the success of the Angel. Would you follow and admire the business acumen of someone who can spend money without any thought about the return? Let’s face it, any business itself should be thinking about the return on any activity before it starts. If the return doesn’t cover the cost + profit then the business will quickly fail. In order for a business of any sort to proceed, the total income must exceed total expenditure.
Chris Hobbs alludes to the issue when he says “investors who have seen enormous success … if not yet financially.” Investors may have had huge personal success with their own businesses. What about someone else’s? Spending money is easy. I want to find those who get a consistent return too.
So how would I define a Super Angel? The definition needs to be sustainable – that is, if achieved the value of the portfolio of investments would increase over time.
- Brian Dorricott (Meteorical, UK): A Super Angel is an individual who invests in unquoted companies achieving at least 20% of exits with a yield greater than 20% per annum.
Even achieving this does not necessarily mean that the Super Angel has a sustainable portfolio. However it does demonstrate that Super Angels are making the right investment decisions and backing companies with real chances of success.