4 Ways to Test a Business Angel

He’s on board. He’s interested. Should you be interested in him? Have you found a Unicorn Investor? The one who has the knowledge, experience and time enhance your business as well as money? How can you find out? Read on…

Have you ever heard that the right investor can accelerate your business through start-up to profit making? Yes, it is true, the right investor can. However they are extremely rare. If you draw a Venn diagram the intersect of those with money AND those with relevant experience is very small so, as an entrepreneur, you have choices. Find money from one source and experience from another or find one person who can do everything. Sure, when you talk to any Business Angel they’ll talk about all the time they will spend with you, the connections they have, the amazing future you’ll have together, etc. but if you don’t ask the right questions, how can you know how serious they are?  Perhaps what you need are some simple questions you can ask that will help you decide if they really are an accountant or your future advisor. Here are four you might like to think about using…

How many exits have your investments had?

Note the key word here: “exit”. You are not asking about all the investments they have made but how many they have received a return from. It is easy to invest in companies, much harder to recover that money with growth. Once you know about the successes find out how much impact their activity had on the return? Did they sit in the background and watch it happen? Or did they take on the role of CFO and drive through some amazing deals?

Can I speak to CEOs of companies you’ve invested in?

Once you have the names of people, look them up and see how their company has progressed. Call them and speak to them. See how your prospective investor has helped them – did they really introduce the company to lots of amazing contacts?

Why is he doing it?

Ask the investor why they have chosen to invest in early stage companies. It is terrifically difficult for investors to beat the stock market growth through early stage investment so what other reasons are there? When I was running an Angel Network I heard many answer to this question including “I am using it to shelter Tax”, “I retired and got fed up of golf all day. My wife complained about me moping around the house so I thought I used some of my knowledge from running a $500M division of Shell to give something back to the community.”, and the best one I heard “because it’s fun to talk about and I just got this great bonus…”.

How many hours per month do you expect to work with me?

Your expectation may well be quite different from the investor so it best to see what time they are allocating. I’ve heard of an entrepreneur who was expecting a day a week from the investor. The same investor was expecting to spend an hour a month with them!

Once you have the answers to these questions you will have a better understanding of the proposition that the Investor is selling to you. This proposition may not match the profile you need. This cuts down your list of potential finance sources. You have three options:

  1. Abandon the search for the Unicorn Investor and go for the money.
  2. Spend a large amount of time interviewing people – perhaps you will need to do this full time to be successful. Do you have that time? Or inclination?
  3. Approach an intermediary who knows a large number of investors. Their role is to match the proposition to the person’s desires more effectively and make personal introductions.

What would you do?

[Original article published on 4-Aug-15 by Brian Dorricott, Principal consultant at Meteorical]