The Reason Most Angel Training Misses the Mark

The Reason Most Angel Training Misses the Mark

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The key role for “training” in emerging markets should be to provide nascent Angels with an understanding of tactics to deal with high risk, and thus confidence to join with others in making their first investments.

Technical training (Valuation, Financial Modelling, Due Diligence etc.) is a necessary but insufficient component of building this confidence. More vital are the elements that address critical risk factors.  These include the development of investment strategies that look beyond just the initial investment transaction, to the life-long funding requirements of the company, and post-investment support. We refer to this as “Strategic Angel Investing”.

Angel investing is a personal activity. Angelsinvest their own money in deals they select. They are free to conduct their investment activity in any (legal) way they wish.

A program must not try to impose a particular methodology or investment thesis, but rather find ways to support individuals to become confident to make investments in the manner that works for them. This does include using ‘best practice’ examples to demonstrate how others have become successful.

But ‘best practice is still subjective, and definitely needs to be adjusted to take into account the realities of local circumstance – the number of investors, availability of follow on and exits, the nature of deal flow and the like

Almost every aspect of Angel investing, from deal sourcing to exit, is subject to discussion about what methods, processes and techniques are most effective. The most effective learning comes from real life stories and examples, relevant to the region (tales of Silicon Valley are rarely appropriate), delivered by inspirational speakers, who are themselves experience investors. By which we mean not only that they have done some deals, but that they have taken a few companies through to a successful, profitable, exit.

An experienced and dynamic programme delivery team, who can adapt to local circumstance is the critical success factor.

Strategic Angel Investing – Rarely Understood

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As an Investor your financial returns will be driven by the following factors:

  1. Initial Valuation (% of company you own)
  2. Subsequent dilution (factor of both future funding amounts and the structure of future deals – do new investors have a preference return ranking ahead of yours?)
  3. Time to Exit
  4. Exit Value

Most founders / investors spend lots of time on item 1 – and almost no time considering 2, 3 or 4.

In determining your financial return the % you have of the company at EXIT is much more important than the % you have at round one. Yet so many investors spend enormous amounts of time focused of getting that initial valuation ‘right’, and no time considering the company’s future funding needs, their ability to contribute to those needs and their resulting dilution.

There is no point in having what looks like a large % at exit, if the other investors have a preference over you. I have seen an exit at $475 million – with the angels getting zero as a result of the preferences.

Don’t let those unicorn valuations fool you. The reality is in the detail of the last finding round terms (which will not be disclosed). Frankly you can claim whatever stupidly high valuation you want – if I have a 3x preference that I will take off the exit table before anyone else gets a penny.