The idea of an angel investor throwing out wads of cash would be a welcome vision for many entrepreneurs, but is that angel also offering wisdom and connections? Because those types of angels are far more valuable says Christine Kaine, founder of Business Angels.
“An angel investor brings experience, networks and money, in that order,” says Kaine. “The guidance and the wisdom are more valuable than the dollars.”
In the twenty-four years since Kaine founded Business Angels, she has seen too many investors in the game for the wrong reasons. She says it’s something that hasn’t changed much over the years.
“Sadly, the environment is very much the same as it was in 1992. The angel investor profile hasn’t changed much. I could look back at my database from 1992 and then look today, and they would be very similar.”
That profile is the successful man in his late forties with money to spare, but not the time or interest to put in enough effort.
“I think what we should be doing is giving Australian young people more help but Australian angel investors are not stepping up to the plate,” says Kaine.
"They are not the king of the deal here, they have only got the money. People with the ideas have the value."
The crowdfunding space is where she sees a role for the modern angel, where their business nous, connections and dollars can be used to spearhead a campaign that secures funding in a way that mitigates the risks to both the investor and the entrepreneur.
“Crowdfunding wraps up the money and the market,” Kaine explains. “It brings the market on board quickly and mitigates the risk for the investor.”
Kaine believes it is the entrepreneur that holds the power, as they have a commodity that can be more valuable than cash: ideas.
Here’s Kaine’s advice on how to choose the right angel:
“There is no need to be all about the dollars. Be willing to say no to an investor. They are not the king of the deal here, they have only got the money. People with the ideas have the value. If the angel has lots of good ideas, why are they looking?”
Get the valuation right
This is what Kaine calls the ‘biggest issue’.
“The investor will often say, ‘you want $100,000 for 30 per cent of the business, but here is $50,000 for 51 per cent. Say no to that greedy investor, the valuation should be fair.”
A good match, not a love match
One of Kaine’s greatest success stories was a business that quickly went from a $1 million to $30 million turnover after an angel came on board, despite the fact the parties did not always get along.
“There can be disagreements. When crafting the contract, there should be a dispute resolution clause built in so that at the first sign of conflict, a meeting could be called with an independent third party to talk it out.”
Love isn’t necessary, but communication is.
“If conversation is difficult before the deal is done, it is not going to get better after, so pull the plug.”
Know the bigger picture
Angel investors work on the premise that around eighty per cent of Angel investments fail.
“So the Angel investor follows the formula and funds twenty businesses, with one of them the ‘unicorn’. The angel funds fifteen, then grabs another five. A couple do well, the rest fail. Those poor entrepreneurs take the deal not realising the angel has invested in them to fail.”
So if you are one of those expected failures, you’re probably not going to get the attention you deserve and lose out on those most valuable qualities of the right angel – their wisdom and experience.
James Perkins is a freelance journalist based on a Gold Coast with experience writing across a variety of areas including business, science and technology, sport and news.