With low bank rates, volatile share prices and property uncertainty, the choice of where to invest funds has become more and more difficult.
Although there is a risk attached to investing in young companies, it can provide a rewarding and fulfilling experience for angel investors, if you follow a few sensible guidelines.
1. Understand that not every investment is guaranteed to be successful
Large investment houses know that in every 10 investments, 3-4 will fail, 3 will survive and manage a small payback, whilst 3 may give excellent returns. Occasionally there is a star.
You have to be prepared and be able to afford a loss.
2. Only invest into what you know
How can you gauge the extent of any risk if you are unfamiliar with the market, or the technology that the potential opportunity is in?
You will also be able to assist with your own knowledge and contacts if you are knowledgeable and have experience in the sector that your investment sits within.
3. Be prepared to commit
Research by the BVCA has shown that companies that are going to fail do so fairly quickly. Certainly the majority in the first 18 months. However, businesses that succeed take much longer to do so. Experienced business angels consider 5 years not to be unusual in committing to a business.
For ease of meeting with the management team, monitoring your investment and understanding the market, you should consider investing local to yourself.
Sometimes you may have contacts, previously lived, or be familiar with other geographies, in which case that is a possibility. Take into account the location of the investment and how you will regularly meet with the principals. Consider also how you will be able to add any expertise that you may wish to use to enhance your investment.
5. Can you work with the people
Not only having confidence in the management team, but being able to establish a excellent working relationship with them is important. Will they listen to your suggestions? Can you both be open to each other in discussions? Will you enjoy working with the management team?
6. Enjoy being an Investor
There’s no need to invest in a “hobby” but if you don’t enjoy some aspect of the business that you are investing in, then you are not getting the most out of your involvement. There are a lot of opportunities out there, why not choose one that you feel good about? It will get you motivated and the investment will receive the best from you.
Never take at face value anything that is said or communicated. You are making business decisions and must ensure that a professional approach is undertaken. Facts, finances, markets and people all need to be checked. See more about due-diligence