Top Advice for Private Investors

• The most likely outcome of any one angel investment is failure. However studies show, overall, business angel returns are enhanced by using a portfolio approach to investing;
• It is important at the outset for you to decide how you determine success;
• The relationship between investor and entrepreneur is like a marriage but one with a planned divorce;
• Start the process of relationship building well ahead of when the money is needed;
• You should undertake due diligence on the company prior to deciding to invest;
• Entrepreneurs can also undertake due diligence on you, checking your record of support or otherwise, so be prepared for this…;
• You should commit to a non-executive director or advisory role but not an executive role;
• Make sure that every contact with a company addresses the top three investment criteria in some form;
• The best exit is a trade sale for cash…it usually maximises value for all shareholders;
• The revenue potential of the company must demonstrate a scalable business that is capable of producing significant returns for you;
• The best business plans have a great executive summary – the point of an executive summary is to succinctly sell the investment opportunity, not to just describe the business;
• A compelling and fully costed business plan is essential;
• It is important that the company’s management team understand and be on top of the numbers;
• Investors rarely want to 100% fund a business and will take comfort from other funders;
• Founders should have ideally had made or intend to make a cash equity investment in the company, i.e. have ‘skin in the game’;
• Have a realistic valuation expectation – entrepreneurs have to be incentivised;
• An equity deal is not just about the headline valuation;
• An apparently unattractively high valuation can be mitigated by a liquidation preference;
• When considering an investment, you need to take into account any potential future funding rounds and the effect that may have on your ultimate shareholding and returns;
• Whilst there have been many successes by individual investors, participating in an angel syndicate can have significant benefits; and
• Syndicates need to be well managed to take advantage of the benefits and mitigate the pitfalls; the best syndicates use a charter.
• Investing in private companies, whilst high risk, can be rewarding and worthwhile with positive financial and non-financial outcomes. If it accelerates the growth of company then entrepreneurs will reap similar rewards.