A reflection on “Winning Angels: The 7 Fundamentals of early stage investing” by: David Amis and Howard Stevenson
The first section of this book talking about the sourcing stage of investment. See my reflection on sourcing here. In the first page of the section about sourcing the authors make an immediate connection between sourcing and evaluating.
For a split second I wasn’t sure why Amis and Stevenson chose to separate the two since they married them early in the reading. After reading about evaluating, I understood why.
Evaluating an investment opportunity is related to four essential elements and highly based on intuition.
When evaluating, you want to know who the deal is with and that goes beyond the business owner. The people include the entrepreneur, team members, investors, advisors and any significant stakeholder. What is the track record? Are they synced with one another and the common goal?
BUSINESS OPPORTUNITY (2)
Within business opportunity are four subelements: model, customer, timing and size. All other these elements are important to understand as an entrepreneur and investor because they tell the story of how the company will make money.
THE CONTEXT (3)
The most common factors related to context are: economy, technology development, regulation, and stage of the industry. In my opinion, this is where the intuition coms in the most. Think about it, intuition is the ability to understanding something immediately without the need for conscious reasoning. If you can project success of an industry, in part based on economy (not solely based on economy), that’s a lot of power.
THE DEAL (4)
Terms of the deal may be the most interesting part to both parties. How much will this deal gain or cost (depending on which side you are on) – price and what will the structure of this deal be?
There are other things to consider during the evaluating stage. Like, what is the risk? Are you asking the right questions? Are you adding value, if so what kind? Do’t ignore the red flags?