As I understand at this stage, when it comes to a deal with an entrepreneur, it is now that I will own a part of the company as an Angel Investor. Understand that this is the startup business, a “baby” of the entrepreneur and you are supporting, helping maintain and see it grow. This is just the beginning because the deal is not done yet till you see the real return of profit and the actual profitable exit. As investing your own money to the company, you should already have experience and knowledge to understand the entrepreneur’s situation. At least believe in his/her vision, business strategies and to make your own decision to participate or not participate in any role to support the business.
Firstly, identify the reasons of supporting behind your decision: is it all about the money or you are just a type of person who wants to help a starter business to succeed eventually. You know there are risks and challenges but because you would like to put your knowledge, experience, and networking in use to help others and expect a return.
Secondly, identify the potential value events are the process of opportunities such as getting to know the business as well as the entrepreneur; the profitable margin that being tested; the quality and value of business that can attract more investors in the next round etc.,
The value events need to be identified and applied in different contexts depending on the type of business in which you are investing:
Is it a product business or a service business? Is it a retail business or an e-business? Are they just a single type or the combinations of two or more?
- Product business: making or selling a product
- Service business: provide a service
- Retails business: selling someone else’s products to the public
- E-business: Using internet to create business
There are five fundamental participation roles for the angels, according to the author Amis, D. and Stevenson, H. Winning Angels: The 7 Fundamentals of Early Stage Investing. Pearson Education Limited, 2001. The important thing is to think about what is the best way for you to contribute, to make the different, and most importantly is to get your money out. You have options to just doing nothing or need to provide helpful resources and specialist knowledge depending on business scenarios:
- Silent investor: pure financing invests, sit back and hope for a return
- Reserve force: ready, willing, and capable to help when needed and when seeing opportunity arises.
- Team member (full or part time): get actively involve on a project or in a functional area.
- Coach: provide support, advice, and any assistance as needed and requested by the entrepreneur.
- Controlling Investor: taking control and manage the company.
As a supportive investor, you offer strategic advice and input in key decisions for the company by providing knowledge and fostering business connections. Help establish networking connections with other group of investors and promote new investors to do business. Assist with the investment process. Offer continued support through the initial set-up and beyond to leverage the growth opportunities. However, you want to see if the entrepreneur has the passion, the commitment to achieve the goal.
Amis, D. and Stevenson, H. Winning Angels: The 7 Fundamentals of Early Stage Investing. Pearson Education Limited, 2001.