The best investors in small businesses are people who have worn the t-shirt and done it themselves. It's a cliché in my world but what makes so much difference to investment in start-ups or growing businesses is having investors involved who bring more than the money.
However, by their very nature entrepreneurs who have grown a business of their own, sold it and made plenty of cash think they have done something special, which of course they have. The key is finding one who doesn't think the only way to build a business is the way they did it.
Believe me, successful entrepreneurs willing to invest in other people's businesses is not a large pool to draw on. It also gets smaller when you look for ones with the empathy and understanding to coach and encourage rather than control or dominate. That said, having been an investor type and fund manager for around 17 of my 32 year career I know a good collection of the right types.
The qualities you look for of course extend beyond experience, available cash and a good control over their own ego. I often think we call such private investors 'Business Angels' out of a sense of irony but in truth the best of them have the grace of an angel and patience of a saint, both are often needed.
A healthy appreciation of risk is also a pre-condition for any investor. NESTA, the National Endowment for Science Technology and the Arts have done some good research on Angel Investing, I have quoted it before, but just remember that unless a private investor invests in at least 10 businesses, to build a portfolio, he or she is likely to make a loss. Not my statistics, that of the survey. On the other hand a number make a good return. That's why potential new investors need to take care, good advice and also examine whether they have the commitment and knowledge to really help the businesses they invest in. That last point, according to NESTA, and me, is crucial.
This might all seem obvious but like so much in business finance and investing I see people building that 'common sense' the hard way. I have to say it's not helped by the explosion of incubator start-up boot-camp culture that is over boosting the number of start-ups with quick routes to riches that in reality don't bend the failure rate statistics.
Interestingly most entrepreneurs who have got there and succeeded know all this, they are just as keen as I am to help the start-ups. The best investors also find the businesses that have grown up without the support and the background. These include the family businesses with new generations taking them over and growing them out beyond their previous limits.
The founder family entrepreneurs are also ones to look for if you want some good advice and investors. We are fortunate up here to have some great ones. Seek them out you might be in for a pleasant surprise.
So where am I going with this? A few things really for anyone seeking investment:
- Look for investors that know your industry or customer base
- Ask how much time or access you will get to a Business Angel
- Don't be afraid to question Angels about their past success.
Lastly, if you're a successful business person do consider investing in start-ups and small business, if you have the time as well as the cash. However, be aware of the risks, you can lose a lot of money on the way to success; a bit like starting your own business really but it's not yours to run this time, ego in the box please.
We are always looking for new investors as well as good businesses so give me a call.
Here at Rivers we also organise and host regular 'Angel clubs' where you can come along to meet seasoned investors and like-minded entrepreneurs.
Find out the benefits and risks of investing, speak to the experienced experts themselves and find out what and just how much it takes.