While not all business angels are in it to make money, the vast majority of us at least hope to. Having been in the game for over a decade, there are a few key takeaways that UK Business Angel Association 'Angel of the Year' Michael Blakey has shared. Note: Not everyone will be able to follow all the rules – particularly doing it full time – but you can still make money regardless. That said, you should remember that angel investing is risky, and you could lose all of your investment if things go wrong.
Do it full time
A lot of investors go to traditional investment network events or wait for companies to find them. However, as Michael states, ‘If you want the good companies, you have to be one of the first five investors that the entrepreneur talks to’. The hard truth is that the most brilliant entrepreneurs with game-changing companies don't need to go through the normal channels to find their investors. Therefore, as an angel, you need to make sure you’re on their radar. But this is easier said than done, and access to quality dealflow is becoming harder and harder. However, there are methods to obtain this dealflow. One is mentoring through an accelerator or other vehicle, which allows you to witness the early stage growth of companies, ensuring that you're embedded in the entrepreneurial and early stage community. Another way is to network with entrepreneurs; entrepreneurs really do talk to each other, and therefore if you're at the front of their minds when they are discussing angels, you will be given access to that inner circle of startups.
Actively support your businesses
The most important part of supporting a business you’ve invested in is listening to what the company needs – not just following some structure you’ve used previously.
Most angels can make introductions to other investors, suppliers, distributors etc. but often overlook introducing the companies within their portfolio. Entrepreneurs are great at supporting and assisting each other, and by making these introductions you're helping create a network of support and collaboration that will pay dividends (pun intended). Further, these companies have their own networks of potential clients that they’ve built out, so there's a fair amount of lead-sharing and generation that can come of these connections. A warm referral / introduction goes a long way in closing a sale.
Lastly, there is a lot of value added from the experience stored in you as an investor’s head. If you’re a veteran entrepreneur, you know what it’s like to found a company, and, beyond all of the support you can provide in the hard-skills department, there is much to be said for being a sounding board when things are down, and providing that touch of emotional support when needed.
Work like a VC
As highlighted in the interview, there are two parts to this rule. Firstly, all VCs set aside portions of their funds for follow-on rounds. Angels should be no different. As angels traditionally enter the investment game at a much earlier stage than VCs – at the seed or pre-seed level – they have the opportunity to invest in these initial rounds and then double down on the investments that are showing signs of progress later on (make sure you have pre-emption rights!). To ensure they have the capital to partake in these later rounds, Avonmore sets aside £5 for every £1 invested in the first round it partakes in.
The second part of working like a VC is ensuring you have a VC-style structure to your investments. This means having an investment manager and an investment committee. A system of checks and balances, if you will, means that there’s always someone playing devil’s advocate. It is very easy to fall in love with a concept, so by working alongside a co-investing partner, who will act as your investment committee, you can ensure you don’t make a decision based on the shiny new toy you’ve just had the chance to play with.
The SyndicateRoom team would like to thank Michael for his contribution to our podcast and academy and congratulate him on winning the UK Business Angel Associations Business Angel of the Year award for 2015/16.