The Business Angel’s 12 Commandments are taken from Olivier Ezratty’s guide to high-tech start-ups and are precautions to be taken by anyone wishing to invest in a start-up in this capacity. Valid for both investors and newbies, these few points can help both parties during their trades, especially if you want to buy a business. But what should you look for if you want to become one?
1. Invest in projects you understand
We won’t say it often enough, if you don’t know anything about IT, it may be wise not to invest in this area, otherwise you will not always understand the problems inherent in this sector. It remains necessary to at least understand what the company does. It makes no sense to want to invest if you don’t understand anything at all, because you can’t ask entrepreneurs the right questions, or advise and even better ensure that the company has real prospects for the future. Even if you are not an expert in this field, be interested in the added value of the offer compared to what is out there and the barriers to entry.
2. Don’t blindly believe in the business plan
Admittedly, it is a valuable tool and a good indicator of the quality of a strategy, but nothing more. Tell yourself this would be known if business plans were gospel. Moreover, making a business plan is not predicting the future, but making a prediction that can vary according to many factors (economic situation, sudden evolution of the market, etc.). Ideally, you should consider your interest in the variables being considered and check that none of them have been biased or, worse, forgotten. Check both purchases and sales. If any vacancies are missing, do not hesitate to report them.
3. Moderate your enthusiasm and let yourself be convinced rather than seduced
Who is not yet impressed by the presence, the choice of words, the gestures, the talkativeness of such a young entrepreneur? If these are essential qualities in politics, they are less so in entrepreneurship, even if they are useful. A good strategy is not necessarily a good strategy. To avoid falling into the trap, take a step back and consult outside opinions. If you are convinced of the key success factors, business model or competitive advantages, you have a better chance of finding a viable project.
4. Prioritize the team over the project
A startup is mainly the people behind it. Without them no business, no creation. It is therefore necessary to put more emphasis on the project leaders than on the project itself. Two ideas would appear in two places in the world at the same time, but would not experience the same success. Interest in the team is not unimportant, especially if the company gets into trouble, because it is the team that will hold the ship. In the same way, it is not a luxury to check that they have the skills necessary for the development of the company.
5. Assess creators’ ability to question themselves
A startup is like life, it never goes as planned. How do entrepreneurs react to the unexpected? Do they question themselves? So many parameters that give you an overview of what to do. It is not uncommon for a company to need to change its business model. The founders must therefore have the ability to question themselves. While they shouldn’t listen to all the advice (some of which is bad advice), they should still be open and receptive to different signals.
6. Don’t take 6 months to negotiate the shareholder agreement
Hit the iron when it’s hot! There are issues that need to be resolved as a matter of priority and the shareholders’ agreement is one of them. You do not have to waste time and money, because it is better to lay a clear foundation and thus avoid unfortunate misunderstandings. The shareholders’ agreement remains a basic legal document and as long as everyone is protected and cannot be harmed, you can move on quickly.
7. Investing and leading should not be confused
I finance, so I lead? Certainly not ! Avoiding leading the companies you invest in is a basic precaution that will prevent you from sinking your investment yourself. Keep in mind that entrepreneurs need money, advice, but not necessarily your leadership. On the other hand, the more you interfere with the management, the more your protection will rise. Since the line is thin, be careful not to cross it as you can quickly get into an actual management situation.
8. Word given, word holy
If you don’t plan to invest in a business, don’t fret about it. On the other hand, if you decide to invest your money there, then stick to your commitments. A Business Angel who doesn’t keep his promises to startups is not a Business Angel but a Business Devil… You’re wasting time for this entrepreneur who can spend it elsewhere, so you might as well forego such an attitude.
9. Dilute Your Risk by Diversifying
Leading to better govern, but above all to better manage. By diversifying your investment, you dilute the risk taken…a story of eggs and baskets. In anticipation of a possible bad patch, it is advisable to diversify quickly because any projects you are going to invest in run the risk of not being successful. If some will surprise you in a positive way, others will face unexpected difficulties, so you better prepare for it.
10. Accept bowls like any entrepreneur
Investing is not always synonymous with a success story. And yet it takes a long way to get there. A path strewn with stones and in the event of a fall you must accept the misstep and learn from it. The minimum is to remain aware that zero risk does not exist. In general, half of your investments are lost, a quarter simply stagnate and the other quarter experiences success.
11. Don’t invest your last savings
We know that playing Business Angels is not within everyone’s reach. If you’re having a hard time at the end of the month recalculating your cash races or your electric bill, then remember! To be a Business Angel, you must have the resources. And for good reason…
12. Money Bet, Money Lost
Not all startups are destined to become international groups with 10-figure revenues. Unfortunately, some don’t even make it past the TPE stage. Anyone who invests their money in a startup must be willing to lose it if you don’t want to be in constant fear and pressure entrepreneurs.
These are the 12 most important points an investor trusts who wants to become a Business Angel. In reverse, this applies to the entrepreneur who has to choose his Business Angel(s). But watch out ! Business Angels Are Not (All) Angels: Bad Practices Exist and We Recommend You Read “Business Devils: Bad Practices You May Encounter” by Guilhem Bertholet.