A checklist for Business Angels

Tuesday, June 29, 2010 11:04

business_angelBusiness Angels are often thought to be tough and worldly-wise and it’s true that they are people who have made a success of their business life, but even a Business Angel needs to remember to use their head rather than just their heart when making investment choices.

There are a number of new business angel investors entering the market, because of falling interest rates and limited opportunities for investing elsewhere, so it’s worth repeating a few essential guidelines for sound business investment:

  1. Invest in areas that you understand and have experience of, your knowledge & contacts will be worth more to the business and you will understand the risks better
  2. Be interested in the business area, get enjoyment from the activity, you’ll then be happy to put the time and effort into the business
  3. Do due-diligence
    - check that the people you are talking to are who they say they are
    - credit checks are easy now days to obtain
    - check thoroughly yourself the financials of the business, or use an accountant
    - examine all claims (market size, patents, etc) to ensure they are correct
  4. Choose entrepreneurs who are realistic, know their market/business well and with who you feel you can have an open working relationship
  5. Do your own investigation of the market potential, look at competitors
  6. Weigh up how much time you will have to spend in the business – does it fit your time available?
  7. It can take longer for a business to be a success (average 6 years) than to fail (less than 3 years), so plan accordingly
  8. Make sure that your overall aims for the business and use of the investment are in sync with the entrepreneur
  9. Agree the respective roles and responsibilities of yourself and the entrepreneur (would you be a working Director, or non-Exec) – agree who would do what.
  10.  

    Clearly there are many more issues that a Business Angel would want to cover before making the investment, including negotiating around equity/debt, agreed exit strategy and sorting out partnership / legal documentation, but by doing the basics right you’ll be in a better position to judge a sound and workable investment.

     

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One Response to “A checklist for Business Angels”

  1. Testing before investing says:

    July 5th, 2010 at 4:02 pm

    I do agree with the No 5 one. Investors should test more before investing.
    True that investors like to invest and not to spend so only few of them would actually spend some money on something before investing.
    I think more should spend a little bit more money and time before investing, which would represent a fraction of the total investment and would secure it.

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