I began reading a book called “Winning Angels” and it has 7 key points that I am going to focus on over the next several weeks. The first point is Sourcing and how to do it well in the world of Angel Investing.
If you do not know what angel investing it here is a quick synopsis. It is similar to that of Venture Capital investors but Angel Investors are a little more hands on in the process sometimes. They can be a part of groups but also are able to be alone and use their own funds for the investing.
The key to being a good angel investor is to have good people to invest in to. In order to have good people to invest in to then you have to have people who are coming to you asking to have you invest. The only way to get those people coming to you is through sources that pour them in your direction. Seems very simple and the book talked about several different ways to get these sources but there were 2 that I thought seemed the most practical and plausible.
The first one was the obvious route where you join a group of already established angel investors and both learn from them while hopping on deals. This is the way that I would go first as I begin a journey into angel investing. Seeing how they decipher whether or not to invest and then utilizing their knowledge of the industry to gather whether the business being proposed is actually viable.
Several parts of that intrigue me because it is almost like a college class with hands on experience and a team that helps you grow and hopefully you can also help them expand based on the knowledge and insight that you have. With more people involved in each investment it allows for greater scrutiny and certainty as to whether an idea can thrive in the real world and make it. Which in turn makes you want to invest your cash or not. It creates a slightly less risky endeavor.
The second way to source new investments that I thought to be incredibly interesting was to find college professors, which they do now in Europe, and have them send you people. These college professors come across great minds as they teach and can probably vouch for students if they have the ability to refer them to angel investors. The key in this, I believe, would be to have great confidence in the professor and in turn give him a place where he can send his past students to in hopes that they can gain what they need to succeed.
This form of sourcing caught my eye because I can see it being a great place to reach people at a young age who may one day become business owners or create something new and a professor can not only see them and hear their ideas. They can know their work ethic and their level of understanding and comprehension. You have someone who literally graded this young person and can relay information on to them in college that if they ever want to start a business or build a product to let them know and they can set them up with an angel investor. Essentially creating a sourcing mechanism that can filter in later on in life.
There were several other sourcing methods in this book but as I said before, these were the two that stuck out the most to me and the two that I would partake in if I get into angel investing.
- Amis, David, and Howard H. Stevenson. Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.