Sourcing is considered the first fundamental of early stage investing in the reading- Winning Angels. During this step in the investment process entrepreneurial projects of merit are identified (Amis & Stevenson, 2001). One angel investor stated, “sourcing is evaluation”. This infers that that the process entails strategic thinking which saves time in the search of (high) value projects. As such, it is imperative that entrepreneurs have well-established strategies in place that help convey the value of their business as well as deal flow. By properly investing time into capital and successfully configuring deal flow, sourcing is more likely to be attained.
Investors are often highly sought after for their resources and have learned how to quickly identify projects worth their time. However, as stated in the reading, “You do not need to found a leading organization for entrepreneurs to generate high-quality or high-quantity deal flow” (Amis & Stevenson, 2001) In other words, the proper approach and strategy by entrepreneurs can lead to a mutually beneficial partnership- between an investor and entrepreneur seeking sourcing. A proper strategy for sourcing can be divided into four sections: preparing activities, networking activities, visibly activities and focus activities. Furthermore, angels will need to consider if a sourcing strategy deals moreso in terms of quantity or quality and manage accordingly.
When dealing with factors that influence quantity, visibility and networking activities can affect deal flow. Similarly, the two factors influencing quality are breadth of networking and breadth of opportunity consideration. Both strategies have their own advantages. Ultimately, sourcing strategies should be based on the fundamentals of good angel investing even if it may be wrong the first time.
Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.
Angel investors create their reputation based on past success or failures. It seems like getting your name out their as an angel investor is much like what a business owner needs to do in order to promote their business. Although I can see how some investors might become overwhelmed with requests to review business plans.
Thank you for your post on sourcing. In particular, I was drawn to your point that “the proper approach and strategy by entrepreneurs can lead to a mutually beneficial partnership.” We have all heard of the “win-win” and are conditioned to search for it on some level but in actuality, there are limited opportunities for true “win-win” situations. Often times, there is significant compromise from one of the involved parties in order to come to an agreement. While this can be construed as leading to a “win-win”, in fact, most of these deals lean heavily one way or another.
The relationship between entrepreneur and investor can be different. Each has something that the other party wants and can’t move forward without. And if both have made sound decisions leading up to the potential deal, neither is compelled to work with the other unless there is a true match and likely benefit. Investors can always find another business to invest in and vice-versa – if an entrepreneur believes in their business, there will be more angels. As a result, rare and true “win-win” can be the result. I would surmise that this is one of the things that draws experienced investors to keep working to find that “next deal”.
I enjoyed reading your post!
Great post on our assigned reading! It is important for entrepreneurs to know that investment does not always have to yield a high investment and could lead to a mutually beneficial relationship. It is more important to build professional relationships instead of focusing solely on investment options.
Sourcing as a means of evaluating was a critical idea that stuck with me as well. Not only are you evaluating potential investment opportunities, but also assessing and modifying your own approach to deal flow. I also though the reference to failures as learning opportunities, while rather obvious, is necessary to point out as you refine how to best identify, in particular, the best entrepreneurs, not just the best business ventures to fit your investment strategy. My favorite quote of the sourcing stage is “…any sourcing method that brings good people is like a gold vein.” In essence, sourcing isn’t about finding the “best businesses,” its about finding the most competent entrepreneurial leaders for the type of business being conducted.
Your statement of an investor is often sought after for their resources seems to be true, but there is a wealth of knowledge behind their experiences with ventures that would make them a bigger resource than just capital. I have been talking to two investors from different backgrounds and have learned a lot.
I do agree with the point that the investor must employ strategies to save time in gaining projects. One of the investors that I have been talking to, has mentioned that he receives too many proposals in a month than he can read. He has a method of screening proposals to either read further or pass them off to fellow investors. While the other is a newer investor and has a network that sends him proposals.
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