SyndicateRoom’s recent podcast with Simon Thorpe, angel investor and backer of success stories like SwiftKey and Vocal IQ, provided some excellent insights into the world of angel investing.
We highly recommend listening to the full conversation:
But if you’re looking for some fast wisdom, here are the three main takeaways.
1. Be sure the founders’ forecast makes the right assumptions.
Simon: “The most important thing when I meet entrepreneurs is that they’ve thought, ‘what assumptions might be appropriate to my business and to my vision of the future?’, bearing in mind there may not even be a market for their product at the time. The best entrepreneurs are creating a new market.
I’m looking to see the entrepreneurs have really understood the assumptions that they’re making in the forecasts. What’s really important is that they’ve actually thought about the size of the addressable market, how are they breaking that market down, how are they thinking about it geographically, is this a global market? Are there a number of specialist verticals within this market? I really want to understand that the entrepreneurs thought about where they can sell their product.”
2. Be sure the team is outstanding.
Simon: “What am I looking for when I first invest? I'm looking for an outstanding team. And of course, everybody says that, but you just think that through quite carefully, what does an outstanding team look like? What sort of individuals are involved?
You're trying to look ahead, you're trying to look at five to ten years and say: this team is capable of growing and building this business over a five to ten year period. They may be great at producing the idea. But maybe they're not good at commercialising it. Maybe they're not so good at building a team, maybe they're not so good at execution, the boring executional stuff that comes after the original innovation. That's important.”
3. Don’t sell too soon.
Simon: “Really good businesses take time to grow. When I look back at the experience I've had over the last 10 to 12 years, the best businesses will take 10 to 15 years to grow to a really sizable exit. It's possible to do it in 5 to 10 years, it's possible it happens in 18 months or two years. But it's very, very rare that that happens. So you’ve got to think about a long timetable. It's called patient capital for a reason. Don't sell too early because your best ones, your oranges take longer to ripen than your lemons, and you've got to stick with your oranges.”
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