Influencing investment outcomes
Angel investing is an Art not a Science. They are however key factors which have been shown to influence positive returns:
Take a portfolio approach
“You must learn from other people’s mistakes. You can’t possibly live long enough to make them all yourself.”
Developing a portfolio strategy for your angel investing is critical, and is best done before making your first investment. Why? Angel investing is a risky asset class.
It is inadvisable to put all of your disposable capital in any single deal, unless you have serious reasons to only wish to back one individual company. Spreading your financial investments in a diversified approach across a number of small businesses, potentially in more than one sector, or varying sub-sectors across a specific industry or market has been shown by experienced investors to spread your risks. It will also maximise potential for overall successful returns ,rather than putting all your investment into one business.
It is important to note that research has identified that at least 57% of all angel investments do not return the stake money. Thus in order to maximise your outcomes, it is advisable to increase the potential for successful outcomes for the remaining 40+% of investments.
Portfolio Strategy Requires Several Approaches
Make at least five investments
The chances of achieving a predictable and positive return are more likely if you build a portfolio of between 5 and 10 investments (either companies or rounds) rather than taking a ‘one-off’ lottery approach.”
Invest smaller amounts to spread your disposable income across multiple deals– Angels are individuals and naturally their wealth levels vary.. For angels with less to invest, this translates into making smaller investment ( eg between £5k and £30k) in multiple deals Research has found that investing larger or smaller sums is not a predictive factor of performance.
Plan for funding additional rounds in portfolio companies
It is important to ensure you have sufficient additional disposable capital to back the winners in your portfolio in ever increasing amounts. Angels should reduce the amount or not invest in follow-on rounds of companies that are not performing. Try to understand which investments are failing., by closely monitoring your deals wither directly or through a lead angel on your behalf.
Learn from Other Angels; By working in syndicate alongside experienced angels , by or those with specific industry experience, you can identify which deals are likely to be successful
Invest in What You Know
Invest in sectors or areas of business where you have experience or prior knowledge. Or invest alongside another angel or group of angels who are experienced in investing in this sector and who will also offer ongoing expertise and experience to the business.
Do Due Diligence
Carry out at least 20 hours of due diligence and you are likely to make more informed investments, resulting in more successful outcomes and returns. Due diligence should be done to satisfy yourself about investing in the business on all the main aspects of the business including the team, the market and product; legal and financial aspects before making the investment. For more information on due diligence CLICK HERE.
Follow Your Investment
Keep in touch with the business, providing relevant advice and support, or for example sitting on the Board, or providing business or marketing contacts. This could be done by yourself if you have time and the relevant skills and knowledge, or by an appointed experienced lead angel if you are part of a syndicate.
Participate in Education and Training Programs
Access knowledge and experience through participation in specialist angel investing education and training curses. – see also the UKBAA Accredited training course in Angel investing and see UKBAA events calendar for details fo local training courses operated by UKBAA members.
Register your interest for UKBAA Training and Accreditation