ENT640 Winning Angels – Evaluating
Amis and Stevenson (2001) hold to four elements that create a perfect opportunity as offered by William Sahlman and Howard called the Harvard framework. One missing link and failure looms from all your efforts. “The investment opportunity [is] an interconnected combination of four elements: people, context, business opportunity, deal.” (pg. 75-77)
People are made up of key players: the entrepreneur, management team and stakeholders. From the outset the creator “has more freedom to mess up, save it, bring it to boil, or take it onwards, than [he or] she will ever have again.” (pg. 81) This is their baby, and if they are not a veteran parent, there will be casualties of parenting along the way. As a start-up entrepreneur, these same casualties will be opportunities to mold experiences that will bring the project into maturity and success. They are hands on everything in the beginning so the angel investor banks on the entrepreneur. They will pay particular attention to “their goals, their knowledge and their capabilities.” (pg. 81)
Key questions for the investor (pg. 83-84):
- What are the underlying goals and are they relevant?
- Do they know this business and are they respected by their peers?
- Can they do it and get others to do it?
The management team is the vehicle aimed at forward movement. When a management team is in place, you can assign another degree of confidence in the investment. Expertise by these members should translate into “relevant skill set[s].” (pg.87)
“Stakeholders (angel investors, advisors, board members, venture capitalist, customers and suppliers) are important because they can have a major impact on value creation and perception.” (pg.89) Do you see what I see through a lens of worth and growth? A trusted name supporting an endeavor will create trust in the market.
The context is joined at the hip with the opportunity. It includes: “economy, technology development, regulation, and stage of industry.” (pg. 99) And don’t forget the competitors. You can marry an opportunity when “you understand the fundamental business and that all of the big questions have been answered.” (pg. 91)
Key questions for the investor (pg. 92-97):
- Does the business model show how you obtain, keep and serve customers for profit?
- Where are the customers, ready and eager to obtain the product or service?
- Is the timing right for purchase?
- What is the return-on-investment in direct relation to the size of the company?
Now we are ready to deal – price and structure. Putting price on the table first is “one of the easiest methods to eliminate the deal.” Structure can make or break the deal as well. It includes investment terms, board control, or management team limitations “…directly impacts the likelihood and the size of the harvest events.” (pg. 104)
From the seed (people) to planting and growth (context), to maturity (the opportunity) and finally the offering (the deal), an investor must balance the investment of time as well as money. The evaluating stage is the courtship that can be like speed dating when you lay your cards on the table of what your intentions for investing are or it can be a slow dance to access risk. Either scenario can yield a profitable harvest.
Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.