Taken from Olivier Ezratty’s guidance on high-tech start-ups, Business Angel’s 12 commandments are precautions anyone who wants to invest in a start-up in this capacity should take. Valid for investors as well as for startup bosses, these few points will help both sides during their transactions, especially if you want to buy a company. But what to watch when you want to be one?
1. Invest in projects you understand
We can’t say this enough, if you know nothing about IT, it may be wise not to invest in this area, otherwise you will not always understand the issues inherent in this sector. It remains necessary to at least understand what the company is doing. The desire to invest is meaningless if you don’t fully understand because you won’t be able to ask traders the right questions, or advise and better ensure that the company really has hope for the future. Even if you are not an expert in the field, have an interest in the added value of the offer compared to what exists and the barriers to entry.
2. Don’t blindly believe in the business plan
True, this is an important tool and a good indicator of the quality of a strategy, but nothing more. Tell yourself it will know if business plans are gospel. Additionally, making a business plan is not predicting the future but making a forecast that can vary according to many factors (economic situation, sudden market evolution, etc.). Ideally, you should have an interest in the variables being considered and check that none of them have been biased or worse forgotten. Evaluate both purchases and sales. If some positions are missing, feel free to report it.
3. Moderate your enthusiasm and you prefer to convince than to attract
Who has not admired the presence, choice of words, gestures, speech of such a young businessman? If these are important political attributes, they are less entrepreneurial even if they are available. A good strategy is not always a good strategy. To avoid falling into the trap, step back and consult outside opinions. If you are convinced of the key success factors, the business model or the competitive advantages, you will have a better chance of finding a viable project.
4. Prioritize the team over the project
A startup is largely the people behind it. Without them, there is no business, no creation. Therefore, it is necessary to place more emphasis on project leaders than on the project itself. Two ideas will appear in two places in the world simultaneously but will not experience the same success. Having an interest in the team is less important, especially if the company is experiencing difficulties because it will be the team that will handle the ship. In the same way, proving that they have the skills necessary for company development is not a luxury.
5. Assess the ability of creators to ask themselves questions
A startup is lifelike, it doesn’t go as planned. What is the reaction of traders to the unexpected event? Are they asking themselves? There are so many parameters that will give you an overview of what you need to do. It is common for a company to need to change its business model. Therefore, founders should be able to ask themselves questions. Although they should not listen to all advice (some is bad advice), they should still keep an open attitude and be receptive to various signals.
6. Do not take 6 months to negotiate the shareholders agreement
Strike the scaffold when hot! There are issues that must be resolved as a matter of priority and shareholder agreement is one of them. There is no need to waste time and money because it is better to establish clear grounds and thus avoid undesirable misunderstandings. The shareholders ’agreement remains a key legal document and as long as everything is protected and can’t be hurt, you can move on quickly.
7. Investment and leadership should not be confused
Am I financing so am I in charge? Certainly not! Avoiding directing to the companies in which you are investing is a key precaution to avoid sinking your investment on your own. Remember that entrepreneurs need money, advice, but not necessarily your leadership. On the other hand, the more you interfere with management, the more likely your protection is to jump. Because the border is thin, be careful not to cross because you can quickly land in a de facto management situation.
8. Given word, sacred word
If you have no plans to invest in a business, you don’t have to defend yourself about it. On the other hand, if you decide to invest your money there, then keep your promises. A Business Angel who doesn’t keep his promises to startups is not a Business Angel but a Business Devil … You are wasting time for this entrepreneur who can assign it elsewhere so you can also avoid having of such an attitude.
9. Reduce your risk by diversification
Leading to reign better, but above all to manage better. By diversifying your investment, you reduce the risk taken … a story of eggs and baskets. In anticipation of a possible bad patch, it is recommended to diversify quickly because all the projects in which you invest are in danger of not being successful. If some surprise you in a positive way, others will encounter unexpected difficulties so you can also prepare for them.
10. Accept bowls like any trader
Investing is not always synonymous with a Success Story. And yet, it takes a long way to get there. A path strewn with rocks and in case you fall, you have to accept the wrong step and learn from it. The minimum is to remain aware that no risk exists. Generally, half of your investments will go to losses, one quarter will just stand and another quarter will experience success.
11. Don’t invest your last savings
We know that playing Business Angels is not everyone’s reach. If you’re having trouble at the end of the month, re -calculating your cash careers or your electricity bill, then steer clear! To be a Business Angel you have to have a way. And for good reason…
12. Money bet, money lost
Not all startups are set to become international groups with 10-figure turnover. Some, unfortunately, do not even go beyond the TPE stage. Whoever invests his money in a startup should be prepared to lose it if you don’t want to always be in anguish and put pressure on entrepreneurs.
These are the 12 key points on which an investor who wants to be a Business Angel hopes. With the mirror effect, it is valid for the entrepreneur who must choose his or her Business Angel (s). But be careful! Business Angels are not (all) angels: evil deeds exist and we recommend that you read “Business Devils: bad habits you can encounter” by Guilhem Bertholet.