ENT 640: Winning Angels: The 7 Fundamentals of Early-Stage Investing

ENT 640 Week 2: Sourcing

Blog week 2: Sourcing

What is sourcing? “Sourcing is evaluation” (p.33). The Seven Fundamentals of Early Stage Investing, suggests using 18 sourcing activities to sift through the possible investments before deciding on the best one. Sourcing is identifying projects worth investing in. Through these 18 activities it takes a lot of time but worth the end result of finding a good investment. The activities are in four different categories, these categories include: preparation activities, networking activities, visibility activities and focus activities.

Preparation Activities:

  1. Writing and distributing a one or two page describing what you want and what elements will be considered including:
    1. valuation
    2. stage
    3. industry
    4. investment size
    5. status of management team
    6. status of stakeholders
    7. market size
    8. market focus
    9. track record of the team

Networking Activities:

  1. personal meetings with:
    1. bankers
    2. lawyers
    3. venture capitalists
  2. Participate in an angel group
    1. Group initiatives
  3. Share Quality deals with other angels
  4. Join an angel/entrepreneur matchmaker
  5. Reward your network

Visibility Activities:

  1. Give an interview
    1. Hire a public relations agency
  2. Give speeches, publish articles
  3. Teach an entrepreneurship/angel course
  4. Write a book
  5. Make an investment
  6. Hire the best lawyer, accountant in town
  7. Co-invest with winning angels

Focus Activities/Tactics:

  1. Focus on your network
  2. Focus on one or two industries
  3. Build a network in one industry
  4. Act in a syndicate
  5. Turn away all but….

Quantity is based on the visibility and networking activities, and to improve the quantity of deal flow. Deal flow quality is based on networking and focus activities. New investors are usually more concerned with quantity and seasoned investors take more time to find the quality investments. Entrepreneurs make great investors because they know a good entrepreneur when they see one.

In The Winning Angels Study, David Amis proved what the most effective tools and tactics are used by winning investors. These tools and tactics included:

  1. Educate their networks
  2. Act strategically
  3. Remain open to chance encounters
  4. Set up their own operations
  5. Source a good CEO
  6. Manage public relations
  7. Join, or associate regularly with, an angel group
  8. Use their relationships
  9. Act supportively, even if they aren’t going to invest
  10. Invest in industries they understand

Most investors make the mistake of networking informally and advertising publically that they are an angel investors which results in unfocused deal flow. If they are well known investors quality projects will come to them, or they will attract deals by just being known for having money.

The top forms of tools and tactics that have been found through experienced investors were:

  1. Developing your own source of deal flow
  2. Developing network through co-investors
  3. Following the leader, find an experienced investor in the field to follow, find a mentor
  4. Build relationships with VCs to develop deal flow, VCs may be want to refer deals to investors with hopes that later they will be involved with the companies.

 

References:

Amis, David, and Howard H. Stevenson. “Sourcing.” Winning Angels: The Seven Fundamentals of Early-stage Investing. London: Financial Times Prentice Hall, 2001. N. pag. Print.

 

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