A savvy angel investor once told me that before he buys anything – whether it is a business, a house, stocks and bonds, or a lawn mower – he would first determine how he would sell it.
Doing that is valuable for 2 reasons.
First, it urges him to figure out whether the price of the item is decent enough that he would be able to sell it for a profit, or at least break even.
Second, it forces him to consider the market and identify a potential buyer.
Without performing this little bit of precautionary measure, he might overpay or he might wind up stuck with an obscure item that nobody else wants to buy once he is finished with it.
Thinking his way past the point of sale also makes him consider the kinds of enhancements he needs to add in order to increase the item’s attractiveness to the next buyer.
For items that are time-sensitive, like depreciating options or cyclical commodities, he would set a deadline for sale.
For those that would likely gain value over time, like baseball cards, first-stage ventures, or retirement account, he would calculate the items’ potential appreciation.
That’s a smart approach, because buying before pondering the other end of the equation is never a good investment strategy.
In the world of angel and venture investment, that comes down to finding follow-on investors and potential buyers.
If you want to be a successful angel investor, you ought to hunt for and cultivate potential buyers with the same degree of diligence and attention that you apply to uncovering promising deals or putting together effective management teams.
As a smart angel investor, you would also develop solid relationships with potential buyers, who can crown your portfolio companies with success.
Investing in start-ups is a business of life-cycle management – from sourcing and coaching, to funding through various stages and collaborating with others to make co-investment and exit decisions. All of those phases require resourceful, trustworthy relationships. If you have those relationships, you will succeed while others stumble or fall.
Birds of a feather flock also together, so if you cultivate relationships within both the entrepreneurial community and among potential buyers, you will find yourself surrounded by the kinds of resources that ensure success across every stage in the investment process.
With just a few days away from 2011, the new year is a great time to start seeding and cultivating relationships. Go make some new friends and have a happy and prosperous new year, dear angels!
* For series, references are published in the last installment of the series.
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