I was in Italy a couple of weeks ago at the request of the US State Department to discuss angel investing with IBAN, the Italian Business Angels Network. Here's a list of angel practices I discussed at the end of the first day's presentation:
When beginning as an angel investor, think about these things:
1. The most important person in the business is the customer. Everything starts with solving a problem the customer has, and solving it in a way that is valuable - in other words, that the customer will pay for.
2. The inventor is critical to the business, whether he works in the business or not. Without his commitment to helping the business succeed, chances for success are much smaller.
3. Spend lots of time making sure that the people in the company are the right people. Know what critical experience and skills will be needed and make sure it is there. All successes and all failures can be attributed to people.
4. We must always remember that there is plenty of money to be invested but too few really good ideas. As soon as we have made an investment we become members of this team and our sole focus is on helping them succeed so that we may be worthy of their effort and their respect. Over communicating our expectations, hopes and goals will build a more trusting and more successful company.
5. There is no substitute for experience in the process of assessing and investing in companies. We seek to cooperate with other investors so that we may have access to as much experience as we can get.
6. We tell entrepreneurs that who they take money from is much more important than the relative price they pay for it. We are very careful about our investment partners for this reason. It would be a terrible idea for an entrepreneur to take what we call “dumb money” – from unsophisticated investors who may have restrictions or controls about what the company can and cannot do, for instance.
7. It is more important to prove that a market exists and that a product works than it is to build infrastructure. We actively discourage companies from hiring when they can use contractors, from thinking about developing their own manufacturing, or in any way building too many fixed costs. Fixed costs can be a real burden in a situation of cost overruns.
8. When companies do hire, hire slowly and accurately. The cost of hiring quickly and making mistakes is very costly in many ways.
9. A simple business model is always better than a complex business model. It should be embodied in a business plan that is robust and is the constant guide for the daily implementation of the business.
10. Before you write the first check, have an agreed upon exit plan and strategy.
11. Always remember that entrepreneurship is at the opposite end of the spectrum from administrative or bureaucratic behavior. It is a never ending process of innovation, Identification of opportunity; marshalling resources; action/exploitation; and, harvesting.