Angel investing in most parts of the country remains a relatively informal and unstructured process. The depressed economy has dampened the angel community’s appetite, making the identification of the trophy investor more important than ever. Professional angel investing takes time, knowledge, skills and resources. The trophy investor understands these challenges and has developed a professional process to manage his investments.
Main Street Venture Fund LLC, an angel fund of about 25 private investors, was formed by Ruffolo Benson LLC in northeast Indiana with the intention of bringing together area entrepreneurs and private investors to create economic value for the region. I will share several of our group’s insights from the past two years.
For an angel investor, it’s a buyer’s market. At Main Street, we consistently have more money available than we have found good opportunities for investment. The ideal angel investor possesses a variety of personal characteristics that likely have contributed to successful achievements in his or her own careers. In seeking the trophy investor, consider these traits:
- Financial capability. The investment amount under consideration should be comfortable for the angel investor. The investor must see this class of investment as completely discretionary, where all of the money may be lost, but the experience will be one that the investor benefits from and enjoys nonetheless. If the investor stresses over the investment, the interests of the investor and entrepreneur can easily grow at odds with one another.
- Business wisdom. Prized angel investors not only contribute money to an opportunity, but also important wisdom acquired from prior experience in areas such as stakeholder relations, employee hiring, and strategic planning. Ultimately, it’s this intangible capability that can add the most value to the company.
- Emotional maturity. Entrepreneurship is inherently full of mood swings. A trophy investor is a great coach and mentor, sometimes providing the only shoulder an entrepreneur can cry on during difficult times. Good investor/entrepreneur relationships often grow informally into regular communications covering a wide range of topics. This mentoring can be particularly useful to the entrepreneur working through the personality issues that tend to dominate start up companies.
- Expertise. Along with business wisdom and emotional maturity, the trophy investor will possess specific expertise in the business. Some angel investors only invest in industries where they have knowledge and prior experience. The more industry experience an investor has, the more useful she can be.
- Network. The trophy angel investor typically participates in networks of other angel investors and venture capital firms that are available for evaluation, feedback and syndication. This access can be extremely valuable to an entrepreneur attempting to find additional funding.
As we have considered about 200 investment opportunities over the past two years for the Main Street Venture Fund, we think of our decision-making as a process based on eight major criteria, which we call the “8 P’s for Successful Funding.” I’ll be outlining these in a follow-on article.
Successful entrepreneurs have many skills that play important roles at different times during a company’s life cycle. The skills required for obtaining funding, such as business plan writing, pitch presentation and group communication are different than the skills needed to grow and operate a successful business. Entrepreneurs who ignore their weaknesses and hope investors don’t notice are making a mistake. Landing a trophy investor requires the personal skills, competency, integrity and experience that comes from being a trophy entrepreneur.
Today’s article is presented by my friend Joseph A. Bockerstette, now living in Phoenix, Arizona, an active investor, business advisor, and a founding member of the Main Street Venture Fund. You can contact him directly at firstname.lastname@example.org.