I attended an angel investor group meeting today. This was an interesting group - only 10 or so people, each of very high net worth, looking for large investment opportunities. They remind me more of a private equity firm with the types of deals they are considering, but they invest individually - maintaining the typical angel investor dynamic.
One investor is a recently retired C-level executive of a fortune 100 company. He told me about his approach to investments - questions he works through in the following order:
1. Is the key person (people) coachable?
2. Are the finances and projections in order?
3. Do I believe in the market opportunity and the ability of the company to meet the opportunity?
I boil down every private equity investment consideration into 3 categories - management team, market opportunity and capital structure. That is exactly what he did, but he put his priority to them. All 3 have to be there in order to have a shot for his investment, but if he is not satisfied with the first answer - the key manager's ability to take wise direction, grow, and get out of their own way - he will not move forward.
More companies fail due to management team issues than poor market planning and lack of capital combined. I would say that poor market planning and lack of capital are actually a sign of poor management. Yet with the amount of work I do in tech sectors I still see many businesses started by strong headed technicians who are seeking to advance their brain child off of other people's money without much care to the financial responsibility or solid to-market strategies necessary for a successful business. Stay away from these folks! They are tricky, but try to identify them early!
I could not agree more with this guy's approach. If the key person is not coachable, you have a pride issue that will lead to the company's failure. Great question to ask out of the gate.
One investor is a recently retired C-level executive of a fortune 100 company. He told me about his approach to investments - questions he works through in the following order:
1. Is the key person (people) coachable?
2. Are the finances and projections in order?
3. Do I believe in the market opportunity and the ability of the company to meet the opportunity?
I boil down every private equity investment consideration into 3 categories - management team, market opportunity and capital structure. That is exactly what he did, but he put his priority to them. All 3 have to be there in order to have a shot for his investment, but if he is not satisfied with the first answer - the key manager's ability to take wise direction, grow, and get out of their own way - he will not move forward.
More companies fail due to management team issues than poor market planning and lack of capital combined. I would say that poor market planning and lack of capital are actually a sign of poor management. Yet with the amount of work I do in tech sectors I still see many businesses started by strong headed technicians who are seeking to advance their brain child off of other people's money without much care to the financial responsibility or solid to-market strategies necessary for a successful business. Stay away from these folks! They are tricky, but try to identify them early!
I could not agree more with this guy's approach. If the key person is not coachable, you have a pride issue that will lead to the company's failure. Great question to ask out of the gate.
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