|
They're real, but few survive.
High risk investing is dangerous to your bank balance. The
process toward extinction is that an angel risks money in
one venture. It fails. Then, he joins a group of angels
and risks money in another venture. It fails. At this
point, the angel usually hands in his or her wings.
To be an angel, you must
have considerable discretionary income. This is why most
angels are attorneys, accountants, medical doctors or
successful small business people. Attorneys and
accountants often form angel groups from their client
base. Their goal is to take the ride on the roller coaster
without paying for the ticket. Their clients invest in the
project and they get a piece of the action. Since the
action is usually bad, all they get from the effort is a
reduced client base.
Angels want to invest
within fifty miles of their location. This allows them to
visit the office or plant of the investment on a regular
basis. As the company starts to fail, the proximity card
encourages the angel to try to take over the business
investment. This mistake is often made by successful small
business people.
I'd defer to a study on the
odds of attracting an angel to your company. However, my
experience suggests that an angel will invest in about one
company out of every three hundred that send the angel
their business plan. My experience is based upon working
with San Francisco Bay Area Venture Capital Clubs over a
decade ago. Given the greater investment interest today,
your odds may be better than 1-in-300.
Eighty-five percent of
small businesses fail. Among the 15% that succeed are
franchises and professional offices. My guess is that an
angel has about one chance in ten of making money on a
risk capital investment. The angels think they can beat
the odds. They're wrong.
Most attorneys, accountants
and medical doctors achieve their social position and
income by believing what they read. As a student, if you
question the data in a textbook, you are unlikely to pass
the final exam. This pattern of read and believe gets the
student from first grade to medical school or law school.
Believing what you read in a business plan is often a
mistake. Professionals tend to believe the written word.
Doing so as the basis of a risk capital investment is
fatal. As more than one professional has told me when they
turned in their wings, "I guess I'll have to raise my
fees to offset my business loss." I've often wondered
if barring professionals as angels wouldn't lower legal
and medical costs.
Small business owners
believe they are "smarter than the average
bear." It's their ego that often clouds their
judgment. If you don't believe that you've made a mistake,
you'll dump more money into a black hole investment. It's
this group that are most likely to turn in their wings as
they file for Chapter 11. "There's a time to hold
them and a time to fold them." Successful small
business people don't believe in folding.
There are always angels
coming into the Market. We live in boom times. The
population of angels is growing. If you can catch a nearby
angel, do it. It's best to catch them before they see the
financial fire that awaits most of them.
As with buying lottery
tickets, there are a few successful angels. I'd like to
see a study of how long they last, if they beat the
investment odds.
To contact the author:
Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/]
Or, visit the Global Village Investment Club Website: [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
|
