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Angel Tip of the Week


Selecting  the  'Wheat  from  the  Chaff'


Let's face it:  High-net worth investors (Angels) do not typically do well with their investments in privately-held, early-stage ventures.  The question is:  How can Angels improve their batting averages in their risk portfolio?  What are the factors that Angels should consider to maximize annual Rate of Return?  Let's start with the valuation equation:


                     Present Value    = 		       Future Value
---------------------
             ( 1 + i ) n

where i  =  annual Rate of Return  (i.e.,- a 50 % rate of return = 0.5) and
n  =  number of years.

The first step is to focus on the selection criteria to be used in evaluation of venture investments:

-  Is there a credible Business Plan?
-  Will the venture survive and thrive, and have a liquidation event (harvest) within 5
    years?
-  Is the Present Valuation justifiable to permit an ROI of 10 - 25 times your initial
    investment?
-  Does the venture have a validated Business Model (Market Surveys or actual
    customers)?
-  Are the founding entrepreneur and the team credible, mature, powerful, opportunity
    obsessed?
-  Is there truly an Opportunity or is this just another idea?  There is a world of
    difference!
-  Is Value being created for sustainable differentiation and competitive advantage?
-  When will operating-cash-flow become positive?  If the company continues to need
    cash infusions your stock position will be continuously and significantly diluted.

This is a starting point.  More to come on this topic in future weeks.

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