On the whole, experienced angels are an optimistic bunch. Where others see doom and gloom, they see flickers of light that could turn into bright flames.

This optimism can lead to opportunities. In the current economic climate, venture capital firms are cutting back on their investments and becoming more cautious than usual. They are especially reluctant to get involved in early-stage investments. For angel investors, this is good news. It means that they don’t have to compete with venture capital firms for a stake in the current crop of promising startups.

Angels who have been around for a while learned from their experience in the technology meltdown of 2001-2003. They know that there are always great startups around, no matter what the economy as a whole is doing. And with less venture capital available, there are plenty of good candidates that are not getting funded. This gives angels the luxury of being more selective in their investments. When the economy turns around, many of today’s promising candidates will become tomorrow’s superstars.

In an important sense, this is an excellent time to be an angel investor because the world’s economic troubles have driven down the valuations of startups. The value of a new company is determined by an estimate of its assets, its market, and its income stream. When these numbers go down, the value of the company goes down. This means that angels can buy a bigger stake in a startup for the same amount of money.

When things do turn around, it is highly likely that Asian economies will lead the way. When this happens, angels who have bought sizable stakes in Asian startups at bargain prices may see an impressive return on their investments.

In good times and bad, Venture Hype is a meeting place for people who look beyond today’s ups and downs to the promise of the future — people who know that any day is a good day to make a difference.

There are several reasons why angel investing is becoming more of a group activity. Perhaps the most important is that angels are taking on larger and larger projects. Established venture capital firms have become increasingly cautious in making investment decisions — especially when it comes to initial funding — and angels are stepping in to fill the void.

Larger projects obviously have larger capital requirements, but that’s not the only reason why angels are coming together to pool their resources. Larger projects also require more business experience and expertise. Groups of angel investors typically include members with a variety of business backgrounds. Besides providing funds for startups, they can offer the kind of coaching and mentoring that many budding entrepreneurs need. Angels can strengthen the management team, introduce best practices, and help create strategic plans.

The members of an angel investment group learn from each other as well. The typical group includes both novices and veterans. You don’t have to an expert to join.

Angel groups often come together around a common theme. For example, a group might specialize in clean energy or retail or hospitality. The members of the group feel more comfortable putting money into a venture because they understand the business they’re investing in.

Angel investing groups are springing up in key financial centers throughout Asia. According to Singapore Investment Network, 3.5% of adults in Singapore have made angel investments, and a growing number of these investors belong to groups.

Whether or not you belong to an investment group, Venture Hype offers a great opportunity to expand your investing horizons and get in touch with like-minded people — people who love the promise and the possibilities of angel investing.

The race to develop alternative energy sources is driven by two powerful forces: uncertainty about the price and availability of oil and concern about climate change and greenhouse gases. In the coming years, these two forces will create enormous opportunities for companies that can provide economical alternatives to fossil fuels.

Farsighted investors are already pouring money into green-tech start ups. In 2008, Chinese companies raised a total of US$430 million in green-tech investments, a 22 percent increase over the previous year. [1] Indian companies brought in US$277 million, an increase of 20 percent. [1] But these numbers are small compared to the potential size of this dynamic new industry.

The greatest share of venture capital is flowing to developers of solar power. In the past, solar energy has been held back by the size and cost of solar panels. Now that is changing. New thin-film solar panels are lightweight and inexpensive to manufacture. They can be glued straight onto an existing roof without the expense of mounting racks. Startup companies are developing new ways to bring this technology to the market, and angel investors are providing the funds and the business savvy these companies need.

Wind power is also experiencing breathtaking growth. Global wind energy capacity grew by 28.8% in 2008. Close to a third of all new capacity was installed on the Asian continent. [2] The Chinese government has identified wind energy as one of the most promising areas of economic development. Angel investors are backing new companies working on ways to bring down the cost of manufacturing wind turbines and components. They also have their eye on small-scale wind turbines that can be used to power individual buildings or neighborhoods.

Beyond solar and wind power, angel investors are also looking at the next-generation of biofuels. They recognize that ethanol and biodiesel have some inherent limitations, but they know there are some promising news technologies on the horizon, especially fuels produced through synthetic biology.

You can keep in touch with exciting new developments like these through the Venture Hype network of angel investors. Venture Hype is a place for practical visionaries — people who have their feet on the ground and their eyes on the future.

Note:

1. Dawn Kawamoto, Green-tech venture funding jumped nearly 40 percent in 2008, CNETNews.com, January 7, 2009.

2. Global Wind Energy Council, Global Wind 2008 Report

Image: Hugh MacLeod

You and a group of other angel investors have placed your trust — and your money — in a startup venture. Now what? What can you and your fellow investors do to help your portfolio company live up to its potential?

The previous articles (Challenges #1, #2, #3, #4) in this series focused on choosing an investment and making sure that you’re getting your money’s worth. But successful angel investors don’t stop when money changes hands. The next step in the process is monitoring the performance of your investment. This is actually something you should consider early in the game. How much involvement do you want to have in the company, and what will that involvement look like?

As an investor of a startup, you need to think about who’ll speak for you. If one seat on the board is reserved for an angel, you need to think about who’ll be able to accomplish the most in that position. And that may not be the person who made the largest investment. The angel who serves on the board should be someone who knows the business thoroughly and is skilled at interacting with others.

Oftentimes, angels also act as mentors and coaches to management. Many startups are headed by young, inexperienced managers who have wonderful ideas but little knowledge of how to make them work. You can provide the sort of expertise and business savvy these novices need. You can also put managers in touch with your network of valuable contacts in the business world.

Even before the investment is made, you need to think about how you’ll communicate with management. You don’t want managers to feel like you’re breathing down their necks, but you do want to establish regular channels of communication. At a minimum, you should request quarterly reports on the company’s progress.

You also need to think about how you want to measure the company’s performance. Are you mainly interested in tracking revenue, profits or technical progress?

And what happens if problems emerge? If, for example, the company badly misses milestones? In these cases, you should initiate closer contact with the company and more frequent communications. You may also offer additional coaching and advice to get the company back on track – but don’t breathe down management’s necks.

Will Your Foal Turn Out To Be a Prize-Winning Horse?

Mature companies are like mature race horses. It’s fairly easy to place a value on them based on their winnings. But startup companies are more like foals. You can study their bloodlines and their conformation, but placing a value on them is more an art than a science.

The most successful angel investors have mastered this art. They’ve developed an exceptional ability to judge how much a young thoroughbred is really worth. They make good judgments about valuation because they know what to look for.

The previous articles (Challenges #1, #2, #3) in this series focused on screening potential investment candidates, doing due diligence, and basing decisions on facts rather than intuition. This article addresses the next challenge in the investment process: placing a value on startups and negotiating favorable terms and conditions.

There are 3 basic approaches to estimate the value of a startup. The cost approach bases judgments on the value of the company’s current assets. The market approach analyzes the size of the market for the company’s products and estimates market share. The income approach looks at the company’s current income stream and makes predictions about future income. A thorough process of valuation uses all 3 approaches.

Coming up with an accurate valuation for a startup is crucial if you’re investing in equities because it’ll determine how big a share of the company your investment will buy. If your investment is equal to 5% of a company’s current value, then you’re entitled to own a proportional share of the company.

Once a value for the company has been established, the process can move on to negotiating terms and conditions. You need to ask some crucial questions. What special rights do early investors receive? What type of securities will be issued to early investors? What assets will investors be due if the company is sold or liquidated?

Placing a value on a startup and negotiating terms and conditions is a complex process. Fortunately, you’re not on your own. Venture Hype is learning exchange for aspiring and motivated angel investors who are interested in seed and startup ventures. The team at Venture Hype shares a passion for bringing practical information to help investors get started, make informed decision, and invest wisely and profitably.

The next article in this series talks about what happens after the investment and what you can do to help your investments grow.

This is not to say you shouldn’t trust your instincts. They do come in handy. For example, if you don’t like or trust the entrepreneur, it’s probably best to just pass on the opportunity. You’ll be working and interacting with him for a good few years. Why waste your time and energy doubting the startup’s ability and/or integrity if you don’t even have faith in the founder?

What I’m saying is, it may be tempting to make decisions based on intuition alone because you find it difficult to gather the facts you need. But the more information you have about a company, the more likely you’ll be to succeed.

What kinds of information? For starters, information about the principles involved. What experience do they have in the field? What experience do they have running a business? You should also look at the business itself. How big is the potential market for its goods or services? Who are its competitors? What sets it apart from the competition?

Then there are the financial facts to consider, information about audited accounts, management accounts, and financial projections. Depending on the industry, you may also want to look into legal questions and issues involving intellectual property.

Digging up all this information can be a daunting challenge. The good news is that you don’t have to do the digging alone. Venture Hype is a learning exchange for angel investors who want to use both their hearts and their heads to guide their investment decisions. The network delivers news and information in digestible format and teams up with seasoned industry players to help take the grunt work out of investing. This doesn’t take the passion out of angel investing. It simply channels it in a more promising direction.

The next article in this series takes up another tough issue: how to set ideal valuations and establish favorable terms and conditions.

This is the second in a series of articles on the challenges you face as an angel investor, a brave soul who provides seed money for promising startups.

Due diligence is the research required to make certain that a business opportunity is really as promising as it seems. It focuses on identifying risks rather than rewards. In conducting this research, seasoned investors take a hard look at the startup company, focusing on the management team, business conditions, and investment terms. For startups that are already in operation, investors might study existing contracts and revenue projections. They might even talk to suppliers and customers who’ve done business with the startup.

Therefore, it’s definitely favorable for aspiring and beginning angels to learn, among other things, how to select a startup, how to spot risks and signs that the business might not be able to live up to its potential, and how to look for indications that management might be covering up problems that could turn out to be disastrous.

Venture Hype is designed to bring together visionary angels from all walks of experience into a free flow of participation, collaboration, and learning. It’s a dynamic, participative e-Learning platform dedicated to delivering tools, resources, and best practices to address the challenges faced by angel investors.

The next article in this series takes up another challenge for angel investors: how to base investment decisions on facts rather than intuition.

How did Bechtolsheim find this incredible opportunity, and how can you discover the next Google?

Well, Bechtolsheim had some serious advantages. As founder of Sun Microsystems, he had an insider’s perspective on the latest developments in information technology. He also had a network of contacts throughout the IT world.

Andy Bechtolsheim is undoubtedly one of the most successful angel investors in US, but most of beginning angels don’t have his advantages. We don’t have an insider’s knowledge or network of contacts. How can we find the next Google, the next little startup that will go on to rock the world and change people’s lives?

Most people have a limited range of sources for investing ideas. Typically, they rely on tips from friends and business associates. Unfortunately, these tips often lead to dead ends or bad investments. And relying on the business news can be just as unrewarding. By the time a venture opportunity makes it to the news, it’s probably too late to invest in it.

How can you find the most promising companies, and how can you separate the winners from the losers?

What angel investors need is Venture Hype, a network of high-caliber researchers and venture enthusiasts who are passionate about delivering tools and resources to help you get started and make smart investments.

This is the first in a series of 5 articles that will introduce you to angel investing. In the other articles in this series you’ll learn how to overcome the challenges that all angel investors face. Keep reading, and keep looking for opportunities to change the world.