Written By: Dan Steininger, President and Co-Founder of BizStarts
As seen on the November 3, 2014 post in Milwaukee Business Journal OnRamp Blog.
The whole process of Angel investing tends to be a mystery to most entrepreneurs.
And most angel investors learn the process themselves from actual investing so they learn from their mistakes.
And yet angel investing is having a powerful impact on our US economy.
Here is the angel statistics reported from Innovation News.
“Angels helped finance 274,800 new jobs in 2012. In 2013, 41 percent of technology sector executives mentioned angels as their source of funds. Likewise, the jobs created in 2013 due to angel funds rose to 290,020 new jobs or 4.1 jobs per angel investment. Businesses where Angels have invested, include Yahoo, Facebook, Google, Amazon, and Starbucks.
Starting in 2010, angel investments are increasing in terms of dollars and number. From $22.9 billion total investments in 2012, it increased by 8.3 percent in 2013 to $24.8 billion. Angels have invested in 70,730 companies in 2013, showing a 5.5 percent increase over the 2012 figure of 67,000 businesses. Angel investments have also moved to seed investing and early stage startups. “
If I’ve learned anything about angel investing is that it’s absolutely impossible to predict who gets angel investments and who doesn’t.
However, there are some basic insights that could be helpful to both investors and entrepreneurs.
David Drake, founder of LBJ Capital and successful angel investor, laid out five lessons he’s developed from being involved in the process.
- Prior to investing, put more weight on qualitative issues as opposed to figures or models.
- Consider the 3-part process of project evaluation – preparing questions for startup owners, evaluating the authenticity of a business venture, and assessing their financial status.
- When evaluating a project, it is important to check the genuineness and honesty of entrepreneurs.
- Make low investments that range between 0.01 percent to 0.5 percent of total financing deals.
- Angel investing requires patience because it takes up to 10 years to get returns.
NYU and Columbia University Professor Phil Ryan said, “Investors need to pay attention to their instincts and be more selective when making investments.” He advised angel investors to limit their investments to 1 percent of every 3000 investing opportunities.
Robin Hood Ventures’ Executive Director Ellen Webber explained the process through which her company decides what startups to invest in. She said that her company looks for three key factors in evaluating projects – preparing questions for startup owners, evaluating the authenticity of a business venture, and assessing their financial status.
John May of the New Vantage Group, (who has the best book on Angel investing that I’ve ever read), interview pretty clean up studies all information given by entrepreneurs looking for funds, and expects no surprises when conducting audits on business documents.
BizStarts sponsors a quarterly investor forum and we prepare entrepreneurs to pitch before our friendly version of ABC Shark tank. We invite all of the local Angels and early VC’s to that forum.
Result is that a number of entrepreneurs have received early-stage investment capital.
In my mind the biggest winners are always those entrepreneurs who can prove they have customers and are growing and learning from their customer base. That’s the gold standard.
About the Author
Dan Steininger is the president and co-founder of BizStarts. BizStarts facilitates the creation of new companies in southeast Wisconsin. He currently teaches courses on innovation for the UW-Milwaukee School of Continuing Education for business leaders. Contact BizStarts >>
OnRamp offers conversation and connections among the entrepreneurs who are shaping Wisconsin’s economy, and brings corporations and start-ups together at statewide events. View other OnRamp blog posts >>