Month: May 2019

Welcome again to my Blog! I will be continuing to use Amis’s and Stevenson’s (2001) suggestions regarding angel investing from their book, Winning angels: The seven fundamentals of early-stage investing. I will be sharing valuable information in this Blog from Amis and Stevenson (2001) about Valuing. Let’s get to it!

What is Valuing?

Amis and Stevenson (2001) state, “Valuation is what you are willing to exchange for something else that you want” (p. 145) and further state, “In early-stage deals, valuation is about placing a price on a stake in a company, based on a future, potential capital return” (p. 145).

How does one go about the valuation process?

According to Amis and Stevenson (2001) there are five ways of approaching valuing which include: the “quick and easy” way, the “academic/investment banker” way, the “professional venture capitalist” way, and “compensated advisor way”, and the value later way (p. 148). The quick and easy way includes several methods including the $5 million limit which is simply the rule to never invest in any venture with a valuation of over $5 million (Amis & Stevenson, 2001). Pretty simple really. The academic/investment banker way includes two methods of which the multiplier method is one (Aims & Stevenson, 2001). The multiplier method includes finding the standard within the industry of the selected product and comparing that standard to the potential product for investment. The professional venture capitalist way includes one way which is the venture capital method of calculating how much of a company one would need to own in order to be able to obtain returns financially (Aims & Stevenson, 2001). The compensated advisor way includes two methods with the Virtual CEO method as one of them. This means that the angel investor would also provide supports during the venture’s startup. The value later method includes two methods including the Pre-VC method (Aims & Stevenson, 2001). In the Pre-VC method, the angel investor provides capital without being provided with shares. As one can see from my brief discussion of different methods, there are many methods to go about the valuation process!

What do new entrepreneurs need to know and what can entrepreneurs do about about the valuation process?

According to Angel Round Evaluation, “Valuing your startup is one of the most important parts of seeking angel investments. Because startup companies generally do not have any revenue, correctly valuating these companies can be difficult…” (para 8). There are several ways that angel investors may compare your new venture with other existing companies. Some considerations include: evaluation of your team, evaluation of whether or not the opportunity exists for success in your chosen venture, product specifications, your competition, your marketing strategies, and what other investments your new venture may require (Angel Round Evaluation, 2019). Keeping these points in mind may help you find just the right angel investor to help you with your new venture. One key would be to be prepared in these areas so that your valuation is positive.

Check out the full article at the following link:

https://www.upcounsel.com/angel-round-valuation

References

Amis, D., & Stevenson, H. H. (2001). Winning angels: The seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

Angel Round Valuation | UpCounsel 2019. (n.d.). Retrieved May 22, 2019, from https://www.upcounsel.com/angel-round-valuation

Hello again Blog readers! As I mentioned in my last Blog post, Amis and Stevenson (2001) have a great deal of information regarding angel investing in their book, Winning angels: The seven fundamentals of early-stage investing. I will be sharing some of the valuable information (too much to share everything here…consider purchasing their book!) in this Blog from Amis and Stevenson (2001) about Evaluating.

AND Here we go…

Why is Evaluation important?

Amis and Stevenson (2001) state, “If you want to become good at early-stage investing, you need to learn how to size up the fundamental elements of an opportunity” (p. 75).

How to go about Evaluating…

Let’s discuss “The Harvard Framework” presented by Amis and Stevenson (2001) for an effective evaluating tool. According to Amis and Stevenson (2001) the Harvard Framework “…will screen out 98% of all start-up investment opportunities” (p. 142).

The Harvard Framework consists of the people, the deal, the context, and the business opportunity. Part of evaluating the people is assessing the entrepreneur (Amis & Stevenson, 2001). For the purposes of this Blog post, I will elaborate on the entrepreneur to provided insights for how entrepreneurs may be evaluated. First and foremost, Amis and Stevenson (2001) discuss the need for the entrepreneur to be honest. Amis and Stevenson state, “In early-stage deals, if the entrepreneur lacks integrity, no single aspect of the proposal can be relied upon” (p. 81). In addition, the entrepreneurs’ knowledge, capability, and goals should be carefully evaluated (Amis & Stevenson, 2001). These are some starting points that new entrepreneurs should keep in mind because angel investors are looking for just the right investment with the right people leading the venture. Ask yourself if you are ready and prepared in these areas.

Important points for angel investors to remember…

It’s important for angel investors to remember some important points. Amis and Stevenson (2001) note to expect it to take years to become good at angel investing, consider using the recommended Harvard framework mentioned as a screen, know that evaluation takes lots of time, and consider co-investing for positive outcomes.

In addition, I also recommend reading the article, “Angel Investing Handbook – VC Broken Down for Investors”, found at the following link from seedinvest.com:

https://www.seedinvest.com/blog/angel-investing

Seedinvest.com states, “Fully understanding all of the risks is of crucial importance when evaluating any investment opportunity” (para 16) and provides several tips for potential investors which include: remembering that at the early stage of investing that you will not be investing in a company but in people, making sure that the values of the potential investment matches your values, staying realistic with profit goals, and understanding the real marketing value of the product.

Finally, something else to consider would be how to evaluate pitches from entrepreneurs just starting their new ventures. Entrepreneurs take note here! Jones (2017) gives insight into what potential investors are looking for when evaluating your new venture. Jones (2017) encourages investors to look for the following: a strong team, the market, traction, the idea and how that idea will be brought to life, and what other investors are saying. Take a look at the complete article for outstanding advice on how to create a winning pitch to find investors.

The full article can be found at the following link:

http://www.angelinvestmentnetwork.net/2017/06/investors-evaluate-startup-pitches/

Take a look to make sure you are prepared to give the pitch of a lifetime to obtain investments in your new venture and good luck!

References

Amis, D., & Stevenson, H. H. (2001). Winning angels: The seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

Angel Investing Handbook – VC Broken Down for Investors. (2016, October 27). Retrieved May 22, 2019, from https://www.seedinvest.com/blog/angel-investing

Jones, O. (2017, June 12). How do Angel Investors evaluate startup pitches? And pick a winner? Retrieved May 22, 2019, from http://www.angelinvestmentnetwork.net/2017/06/investors-evaluate-startup-pitches/

Amis and Stevenson (2001) have a great deal of information regarding angel investing in their book, Winning angels: The seven fundamentals of early-stage investing. Entrepreneurs take note! I will be sharing over the next several weeks valuable information from Amis and Stevenson (2001) beginning this week with Sourcing. To get started, let’s look at a couple of definitions that will help clarify.

What is an Angel Investor?

According to Ganti (2019), “An angel investor is usually a high net worth individual who provides financial backing for small startups or entrepreneurs. Often, angel investors are found among an entrepreneur’s family and friends. The funds that angel investors provide may be a one-time investment to help the business get off the ground or an ongoing injection to support and carry the company through its difficult early stages” (para 1).

What is Sourcing?

According to Amis and Stevenson (2001) “Sourcing or identifying entrepreneurial projects of merit is the first step in the process of making early-stage investments” (p. 33). Amis and Stevenson (2001) break down sourcing activities into four groups.

How to get started…

The four groups of activities to begin the Sourcing process according to Amis and Stevenson (2001) include: Preparation activities (an example given is writing down exact thoughts about what types of investing one is interested in), Networking Activities (an example given is meeting personally with appropriate persons including bankers and venture capitalists), Visibility activities (examples given are giving interviews and writing books), and Focus activities/tactics (an example given is networking).

As a self-published author myself, the mention of writing books as part of visibility activities caught my eye. I will elaborate a bit about this topic. Amis and Stevenson (2001) state, “Publishing a book makes you an expert to many people even if they never read it. The book will often open up speaking and teaching opportunities that in turn create deal sources” (p. 47). From personal experience, I do know that mentioning that you have written a book or books does open doors for speaking engagements. I have a speaking engagement targeting caregivers coming up because I mentioned that I had written books about caregiving while visiting a local Senior Citizen Center recently. As a caregiver for many years now, I do know quite a bit about caregiving and how to survive caregiving. I have published multiple books available on Amazon found at the following link:

https://www.amazon.com/s?k=patricia+kay+reyna&ref=nb_sb_noss

If you are interested in having me speak at your next event please contact me through my website kayreyna.com. I would be delighted! Now, moving on about Sourcing…

Other Considerations regarding Sourcing…

Amis and Stevenson (2001) also provide advice on quality and quantity of investing in projects and provide insights on how to identify a Five-Star Entrepreneur. I wonder if the last part of that sentence caught any entrepreneurs’ eyes? Well, I would want to know…How does one identify a Five-Star Entrepreneur? Amis and Stevenson (2001) suggest evaluating the entrepreneur on considerations including: how well they listen and learn, how well they attract others, if they are honest and how hard they work. Considering those identifiers, are you a Five-Star Entrepreneur or are there areas you need to work on?

References

Amis, D., & Stevenson, H. H. (2001). Winning angels: The seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

Ganti, A. (2019, March 31). Angel Investor Definition. Retrieved May 22, 2019, from https://www.investopedia.com/terms/a/angelinvestor.asp