What does it take to become an angel investor? There are a lot of steps and methods listed all over the internet and how one goes about becoming one along with tips on staying successful. All this information is useful but no one can give you a step-by-step guide on how to be successful as an investor.
Anyone who claims to is lying to you because no one can predict the future. It can be as simple as going with your gut but often we are blinded by a yearning for success and a need to be right. All anyone can offer you is advice on what to do and what to not do. You cannot take people’s advice at face value. You should take it and apply it to your situation before deciding to follow it. Keeping that in mind, here are some tips for first-time angel investors or those considering it.
While it is important to invest in good entrepreneurs, it is as or more important that their ideas are fool-proof. The person may be the best person you have known and you may trust them but can you trust their business ideas? Even if someone has a sound business mind, take a second opinion. This may sound harsh, but the idea is more important than the person. While we cannot disregard the vital importance of a strong founder, a weak idea will fall apart faster than you can say ‘Start-up’. Look out for a strong set of founders (or team) with solid ideas; no other permutation or combination is likely to work.
Do some research. Yes, it is an obvious point and of course you will. But, be sure to specifically search for similar start-ups. While the idea may have appealed to you on its own, it could be a copy of a copy of another copy of a great idea. Make sure that there is an element of uniqueness, no matter what it is. It could be a new feature or a different way of doing an old thing. Many successful ideas are based on day-to-day life and just unique ways of looking at an old problem.
Does the field the founders want to enter remind you of Mordor? Inaccessible, full of angry orcs out to get you and a ridiculous plan to get in? Basically, does the industry have high barriers for entrants? Are there too many of the same or are there already very big players that will snuff you out? If the answer is yes, it is even more important that you are unique in some way and that you have a plan to get in and stay in. If the barriers are too high and the gates are too firmly closed, walk away. There is always another industry or idea to be explored.
Don’t just have a plan B, have a plan C. Don’t put all your money in one place. If it crashes and burns, you’re left with nothing. Again, this seems obvious but often we get carried away and convince ourselves that what we really want to succeed, won’t fail. Just like the Titanic with not enough lifeboats, when you hit that iceberg, you will not have an exit (at least not a very pleasant one). Invest in a variety of assets so that you stumble when there’s crash but you also don’t fall and break something (Ego included).
Make sure that everyone involved knows what they’re doing. As an investor, you should know exactly what you’re getting into so that you understand the way it functions and possible problems. Your founders should know their field, in and out, backwards and forwards. And as mentioned before, ask for a second opinion. Ask a known expert about the field so that you know enough to go forward. You may not know it all but together you can and that should be enough.
And never take it off. There are so many people out there who are out to fool you and everyone that they can. When in doubt, ask, ask and then ask some more. Look at the plan from every angle and then decide. Don’t be hasty in your decisions because let’s face it, it is your money after all. Do not take a vague answer as the final discussion on a subject and question, even if you come off as annoying. It is your right to be annoying, after all. Be absolutely sure before you commit. If there is something that feels off, you are quite likely right. Put on your Sherlock cap and investigate until you are absolutely convinced that there are no hidden agendas. The market and industry themselves will offer you hidden pitfalls; it just makes it harder when you have surprises from your own people.
With the way start-ups are coming up today, this advice can be taken under advisement. Never invest in a start-up only because you are afraid of what if. There must be more to it. This is not like a romantic relationship where the worst is having your heart broken. Hearts heal but lost money does not re-appear as much as we wish it to. As hard as it is, let your emotions take a backseat. There is nothing wrong with being excited or afraid or anything else, but do not let your emotions take over the decision. Be cold and calculating like that villain you hate and you will be more likely to invest in the right start-up.
*Mordor is a fictional place from the famous books and movies, The Lord of the Rings. It is a dark place that is guarded by scary creatures (orcs) and very hard to get to, let alone get in.
Rajh is a serial entrepreneur with ventures in knowledge process outsourcing, hospitality, retail, IT and e-commerce. He has over 25 years of corporate experience and expertise in key roles of leadership, strategy, planning & management. Rajh is especially skilled at developing new profit centers within scheduled timelines and costs while ensuring operational efficiencies through long-term strategic planning. His core expertise includes delivering customized and cost-effective solutions to meet the operational and financial goals of the organization and its stakeholders. Rajh holds an MBA in Marketing from the University of Mumbai.