I’m an angel investor.
I have invested in 8 start-ups. 2 of those have met an unfortunate end. 2 are limping on and the others are all about to be stars. That’s what the Angel Investor always tells himself, because he never gets it wrong - until its wrong. Early-stage investing is more art than science.
I generally invest in early stage B2B software businesses, such as SubHub that some of you will know about, and have recently invested in a film made in Cardiff. Panic Button and I will talk later about why I invested in that during the discussion session.
I want to talk to you about what Investors Look for and What Investees Companies should look for from an investor. Then throw it open to discussion.
Investors in early stage companies look for certain attributes in the business they back.
Some important characteristics that I look for are:
- Unique, Disruptive Technology: Does the company have unique, game-changing technology that has the potential to revolutionise the market it is addressing. Can this world-beating technology be protected?
- Large, Global Addressable Market: Is the Company addressing a large, global market. Ideally that addressable market should either already be, or have the potential to become, a £500 million industry.
- Strong Market drivers: What is driving growth in the target market. Are these growth drivers compelling and sustainable. Does the product or service satisfy an unmet need.
- Scalable Business Model: Does the business have the potential to grow very rapidly. How quick could it achieve revenues of £50m. What resources would the Company need to achieve these revenues. Is there possibility of substantial market share and/or market leadership.
- Commercial Proof of Concept: Has the company’s technology already been validated. Has the company already proven its business model, ideally having already generated revenues from several large, blue chip customers.
- Management Team: Does the company have a high calibre management team led by an entrepreneur with a proven track record of successfully growing business and/or with relevant deep sector expertise. Has the management team invested their own cash into the business.
- Angels like to invest in areas they understand. If they don’t get the technology and know something about the market, you are pitching to the wrong guys.
- One thing that all start-ups lack is business and management experience. There is nothing wrong with that.Recognise your weakness and say that is one of reasons you are raising funds and you hope that the funders can contribute their expertise. Take it. It is cheap and friendly advice in the early days.
- As Investees what you are looking for from an investor is someone who understands, not just your technology and market, but the process you are going through. The heart ache, anxiety and hand to mouth existence – empathy.
- You want someone who is networked. Not just in your markets, but with the professional service suppliers that you need today and as you grow.
- Your plan will change and you will want more money. Make sure that your investors have the resources to put in more when it is for the right reason.
- When you get going make sure your investor is someone capable of guiding you through the process of an exit. You are at that point mutually aligned. A good investor also recognises that you are not always mutually aligned and will know how to manage that process because he has been there and done that.
- Of course all you really want is their money.
David Hulston May, 2011
All material copyright David Hulston Associates Ltd. @davidhulston1