It is often said that we all have the potential for greatness in us. I didn’t say that, though. To be honest, I don’t much believe that either. No offense, but I think very few among us have that greatness about us. Perhaps it can even more be said when it comes to entrepreneurs you’re looking to invest in. Be wary of most, hunt for the few who are truly elite.
Take a friend of mine, an entrepreneur who had a good idea to take advantage of a big-time fad in popular culture. I don’t want to give too many details … he still might be out there trawling the angel investor networks in desperate search of money to save his life. As you can start to guess, his adventure in entrepreneurship did not go well.
To make a long story short, his business plan failed to take into account the fact that fads fade, rather quickly sometimes. So by the time he got his operation up and running, he was hitting the tail end of the pop culture phenomenon. On top of that, a government regulation was created by the United States Congress that completely shut off his primary market. Ouch!
You might call that bad luck. I call that bad planning. Like I said, his idea was good, not great. He was a good entrepreneur, not an elite one. So what happened to his angel investors, as well as all his friends and family members who invested in his dream? They got a letter in the mail telling them his company was liquidated, for cents on the dollar. And the letter wasn’t even signed by him!
ATTRACTING THE BEST ONES
What are the lessons to be learned from my friend’s debacle? Well, for starters, I would suggest that you, the angel investor, get what you’re looking for. In other words, if you look for elite entrepreneurs, you will attract them. If you set the bar high at the outset, only the top startups, investors, brainiacs, and other entrepreneurs will make it.
For instance, only give time to entrepreneurs who come to you with a grasp of what sort of management team it’ll take to turn their idea into a company–and even better, they have that team in place before they put their hands out to you.
When it comes to their business plan, does it have what it takes to scale up as quickly as you’re looking for? The usual way to set the bar here is by a certain amount of revenue by a certain time frame, such as greater than $25 million or $30 million in five years or less. Are their financial projections of creating, sustaining, and growing a market based in reality? Or based on rosy assumptions?
Some veteran angel investors will even tell you that the best way to attract elite entrepreneurs is to stick in the geographical area you know best–in other words, your community and region.
After all, angel investing is partly about giving back to your community, right? So by looking for startups in your area, you satisfy that philanthropic goal. But you also have the ability to really get to know whether or not a local entrepreneur has the right stuff. How? By being close enough that you can drive to see him or her, face to face, whenever you want to.
Speaking of veteran angel investors, perhaps that’s one of the best ways to attract the best entrepreneurs. Learn from your elite peers. Plenty of opportunities exist at angel investing networks, both in person and on the Web, such as at Venture Hype in Asia and others elsewhere.
* For series, references are published in the last installment of the series.
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