The initial stage of a start-up will require more to ride on the shoulder of the entrepreneur than any other period of the history of the company. This period of time will reveal a lot about an entrepreneur. The decisions made shape the road of the entrepreneurial journey. These same decisions also convey the type of businessperson the individual will be and down the road can be a determinant for an investor. As mentioned in the reading, “Most experienced angels eventually come around to the idea that the initial bet is really on the entrepreneur and her team” (Amis & Stevenson, 2001). There will always be important decisions to be made regarding a company’s future that lead to either good or bad results down the road. The character of an entrepreneur as well as their decisions can make or break a business. As stated in the reading by an angel investor, “Honesty and strength of character have to be clarion”. These qualities tie into the importance of an entrepreneur to be a good and effective leader. Their decisions do not only affect their business and employees, but it can lead to the same bad habits being repeated by protégés or entrepreneurial onlookers.
Outside of having a great moral compass and being good at making decisions, there are several other factors to consider within a framework. Some other factors include timing, size, economy, technology, regulation, competition, pricing/valuation and structure. Similar to other aspect in the framework of early-stage investing, many bad deals can be avoided by eliminating non-opportunities (getting the timing right). Timing isn’t necessarily being the first in the market, but entering the market when customers are ready to buy. At this time one can better evaluate the size of potential and gains from the deal. Upon properly evaluating the scale and scope it can be determined if the opportunity warrants risking all of the available investments behind a deal.
As with anything, there are no guarantees. In making a deal of high magnitude, one must always be mindful that there will always be competition ready to steal business. However, as quoted in the reading, “If there is no competition, there is no market!” (Amis & Stevenson, 2001). All in all, it is important to properly evaluate the many factors of a deal, or entrepreneurial decision. Failing to properly evaluate factors can impact not only an investment, but the ultimate success of a business.
Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.
Great post! It seems your analysis of the section on “Evaluating” led to many of the same conclusions as I had, specifically, that “moral compass”, “honesty” and “strength of character” of the entrepreneur are paramount. As you point out, how else can you trust the person that will be responsible for so many crucial decisions? The book also mentions that out of 1,000,000 decisions that the entrepreneur will make you want to identify a person that will get 550,000 of them right. That means that even if you are successful in finding this person they will make a mistake 45% of the time! And anybody who has tried to create something from scratch or been in a business where you have to push the envelope knows this is true! Mistakes are inevitable. What matters is the willingness to immediately acknowledge mistakes, take responsibility for them, and correct them. Those leaders without high character and accountability will fail in this area and that’s where the real trouble will start.
You also make a great point on timing. While timing is critical, it’s not necessarily best to be first. The ability to jump into the market at the moment the potential customers are ready to buy can make all the difference in the world. There is both luck and skill involved in making this happen, which explains why angels must spread their capital across a wide array of businesses while being able to absorb some inevitable failures.
Thank you for a thought-provoking post!
Great post! You made so many valuable points in your blog that are critical to the success of a venture. I particularly liked the fact that, ” if there is no competition, there is no market.” I previously believed that if you had no competition it would make it easier to “sell” or perhaps be successful. I am now understanding that competition is what allows a business to thrive. Much like the Darwinian theory of evolution for humans and animals, survival of the fittest is a key element that pertains to businesses as well. Being able to select the best team members, create a niche and establish your organization as an essential business in the industry will undoubtedly position you and your team to be successful for years to come!
It was very interesting to see how much emphasis is placed upon the habits and character of the entrepreneur. I never realized how important these factors were to potential investors. I had always assumed that angel investors poured over every detail of the business proposition. In reality, it seems that few actually put much effort into that. Instead they rely on the merit of the entrepreneur or the business associates who bring the potential venture before them. This was eye-opening to me. I’m not sure how I feel about this. On one hand, it is nice that investors take the time to try to figure out if the entrepreneur has “what it takes” or at least has the qualities that the investor looks for in a business partner. Yet on the other hand, I think it would be nice if you could stand on the strengths of your actual business proposal instead of on how much investors like your personality.
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