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/