Research Is Key to Smart Investing

Understanding the market potential and knowing what the entrepreneur and his team may be able to bring to the table, or what they may be hiding, is important to the development of sound investing strategies. This is not to say you should assume entrepreneurs are stealthy individuals bent on tricking you into investing, but it’s essential to gather this inside knowledge as part of the process.

To get a better idea of what type of research should be done and who should do it, Venture Hype spoke with Information Security Resources’ Anthony Freed. A researcher and analyst, Freed has extensive experience in research, data collection, analysis, and custom report design. He’s consulted senior members of product development from the largest financial institutions in the United States and has worked as a team member to develop market analysis and competitive intelligence for the banking and finance industries.

VH: For an angel investor just starting out, what research is absolutely essential? Should they do it themselves or turn to a professional?

AF: Angel investors should conduct thorough background investigations of all parties involved. As for who should conduct the research — the investor or a professional — my recommendation is both. If your money is on the table, there’s no such thing as excess due diligence. Professionals can offer their experienced methodology and Rolodex of high-level contacts.

VH: When you analyze a company or startup, what do you look for that might be a red flag or promise of success?

AF: The number one red flag for me is if I see that the anticipated success of an enterprise is somehow dependent upon the ongoing success of some other venture, product, or industry. We saw a lot of those in the dot-com bubble and again in the housing bubble: businesses whose revenue streams were based on incidental, short-term market factors.

The best indicator of potential success for me, assuming all the numbers work and a quality due diligence process ensured, would be the previous successes of the entrepreneurs. If I’m looking at someone who’s essentially following a tried and true formula that’s resulted in success for them in the past, but has been adjusted to suit a new concept, I pay attention. We see this kind of serial success a lot in the technology related fields: good concept and product; company grows and later sold; the entrepreneur begins all over again with a similar product and target market.

VH: We understand that you’ve done extensive work in research from market analysis and competitive intelligence to startup development. Tell us about your business intelligence work.

AF: When contracting for business intelligence work, nine times out of ten, the client first poses research questions that either

• are non-essential to the heart of the problem; or
• lack the background required to produce the impact the client is anticipating

The last thing a client wants, especially under these economic conditions, is to hit a dead-end and waste precious time and resources. Quality research begins with understanding the client and his objectives. A good researcher should do some preliminary investigation and immediately go back to the client to challenge the assumptions and inferences initially made to define the parameters of the study.

VH: Anything else you’d like to add?

AF: Through alternative investing, social lending, and other recent financial innovations, individuals today have the opportunity to redirect capital away from the fee-happy middlemen that are the current financial and banking industry, and directly into the hands of the entrepreneurs who are the lifeblood of our economy. There’s something to be said for a few million people with $1,000 each to invest, and I think some innovators have taken notice.

Of course, further improvement in the information and identity security areas is required, and that’s what we’re working on at Information Security Resources.

* VH: Thanks goes to Greg George of GTI Advisors for the referral.

Link:

• Information Security Resources