Recently I met Chris Spencer-Phillips (S-P) and Chris Brigden of First Flight Placements; they are aware of the difficulties that experienced investors have when finding companies to invest in and they are also aware of the difficulties young companies have raising funds. They propose a different approach... and it is one that is working well.
Do you want to intervene in a small company by adding your time and/or money? If so, you’d better ensure you’re making the most of your time by checking the following indicators:
- Are you really an Angel? Being an angel is not for everyone – do you really know what you want and why you are going to get involved?
- Invest in your industry sector. If you don’t know the sector, how do you know if there really is a business opportunity to exploit?
- Invest in entrepreneurs. Put your time and effort into the people. Your money should be their enabler not their goal.
- Co-invest. Work with others who you trust and you know that they have experience of successful investment and exits. It is less lonely when things go wrong and you can learn by example.
- Negotiate a fair valuation. You are entering a relationship with the entrepreneur and you both need to work together for a long time. If one party feels that they were unfairly treated it is likely to sour the future of the relationship.
- Spend time on due diligence. Surveys show a direct relationship between time on due diligence and the ultimate success of the deal. So make sure you review all details and legal issues effectively.
- Know how you’re going to exit. Looking for an IPO, trade sale or dividend? Everyone needs to know this before you start so that your futures are aligned.
- Minimize your risk. Want to be a Non-executive Director? Check what the risks are. Debt and equity? Revenue Based Finance?
- Have a portfolio. Small business investment is high risk – by spreading your investment you are reducing the likelihood that you lose everything.