This week’s blog post focuses on the importance of evaluating business opportunities as it relates to angel investing. When it comes to investing large sums of money in an early-stage company, doing your homework as a potential investor is very important. In the book Winning Angels, the authors discuss an evaluation framework developed by William Sahlman and Howard Stevenson at Harvard Business School. The elements of this framework consist of the people, the business opportunity, the context, and the deal. These are the key elements that should be taken into consideration when evaluating an investment opportunity.
For this post, I want to focus on the people aspect because it really put an emphasis on the entrepreneur. At this stage in my life, I am focused on entrepreneurship and this topic really helped me understand what potential angels may be looking at should I get to the point of needing investors for a business idea. From reading this book and talking to other successful business minds, I have gathered that the entrepreneur and his team are ultimately the most valuable aspect of securing the investment of an angel. General Georges Doriot, the founder of modern-day venture capital, is quoted saying “I will invest with an A-quality man with a B-quality project, but not the other way around.” I love this quote because it makes so much sense. The entrepreneur/inventor is the engine behind any early-stage business. A product is no good if it doesn’t have a powerhouse willing to put in the long hours required to help get the product to market.
So what characteristics do angels look for in an entrepreneur? First and foremost, a good entrepreneur exemplifies perseverance. They will find a way to win and be successful. Other important characteristics include honest, courageous, competitive, resilient, charismatic, and intelligent. Some of these seem pretty obvious and can certainly be faked during a one-off meeting. Therefore, experienced investors will take them time vetting an entrepreneur to make sure they are who they appear to be. They will ask the entrepreneur countless questions. They will reach out to references provided by the entrepreneur to find out more. They will ask around to other people in the related industry to see if they can find any information on the entrepreneur. By the end of it all, there is no hiding what type of person you are and what type of entrepreneur you will be.
In conclusion, the entrepreneur is one of the most important aspects for angel investors to evaluate when considering a potential investment. The extent to which angels are willing to investigate when they are putting large amounts of money on the table is rather considerable. Therefore, as an aspiring entrepreneur, I am further realizing the importance of networking and building the best reputation I can for myself. Researching this topic has only increased my desire to continue to challenge myself to become more knowledgeable. I plan to do so by continuing to be an active part of my master’s program and to pick the brains of other successful business minds as I increase my network.