Taken from Olivier Ezratty’s guide to high-tech start-ups, the 12 commandments of Business Angel are precautions to be taken by anyone who wants to invest in a start-up in this capacity. Applies to investors as well as to managers of startups, these few points can help both sides during their transactions, especially if you want to buy a company. But what should you look for when you want to become one?
1. Invest in projects you understand
We don’t want to say it enough, if you don’t know anything about IT, it might be wise not to invest in this area at the risk of not always understanding the issues that lie in this sector. It is still necessary to at least understand what the company does. It’s no use wanting to invest if you don’t understand absolutely anything, because you won’t be able to ask entrepreneurs the right questions, or advise, and even better ensure that the business really has a future. Even if you are not an expert in the field, take an interest in the added value of the offer compared to the existing one 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 no more. Tell yourself this would be known if business plans were gospel. Moreover, making a business plan is not to predict the future, but to make a forecast that can vary depending on many factors (economic situation, sudden development of the market, etc.). Ideally, you should take an interest in the variables that are taken into account and check that none of them have been biased or, worse, forgotten. Check both buying and selling. If any positions are missing, don’t hesitate to report it.
3. Moderate your enthusiasm and prefer to be convinced rather than seduced
Who has not yet been impressed by the presence, the choice of words, the gestures, the eloquence of such a young entrepreneur? If these are essential qualities in politics, they are less so in entrepreneurship, although they can be used. A good strategy is not necessarily a good strategy. To avoid falling into the trap, take a step back and consult with outside opinions. If you are convinced of the key success factors, the business model or competitive advantages, you will have a greater chance of having found a viable project.
4. Prioritize the team over the project
A startup is above all the people behind it. Without them, no business, no creation. It is therefore necessary to place greater emphasis on the project managers 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. Taking an interest in the team is not insignificant, especially if the company encounters difficulties, because it will be the team that will be holding the ship. In the same way, it is not a luxury to verify that they have the skills necessary for the company’s development.
5. Assess creators’ ability to question themselves
A startup is like life, it never goes as planned. How do entrepreneurs respond to the unexpected? Do they ask themselves? So many parameters that will give you an overview of what to do. It is not uncommon for a company 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 keep an open mind and be receptive to different signals.
6. Don’t spend 6 months negotiating the shareholder agreement
Strike the iron when it’s hot! There are issues that need to be addressed as a priority, and the shareholders’ agreement is one of them. No need to waste time and money, because it is better to establish clear foundations and thus avoid unfortunate misunderstandings. The shareholders’ agreement remains a basic legal document, and as long as everyone is protected and can’t get hurt, you can move on quickly.
7. Investment and leading should not be confused
I finance therefore I lead? Certainly not ! Avoiding managing the companies you invest in is a basic precaution to avoid sinking your investment yourself. Remember that entrepreneurs need money, advice, but not necessarily your leadership. On the other hand, the more you interfere with management, the more your protection is likely to jump. As the line is thin, be careful not to cross it, as you can quickly find yourself in a de facto leadership situation.
8. Word given, word sacred
If you don’t plan to invest in a business, you don’t need to beat yourself up about it. On the other hand, if you decide to invest your money there, keep your commitments. A Business Angel who does not honor his commitments to startups is not a Business Angel but a Business Devil… You are wasting time on this entrepreneur who can use it elsewhere, so you might as well not have one such attitude.
9. Dilute your risk by diversifying
Leads to governing better, but above all to governing better. By diversifying your investment, you dilute the risk… an egg and basket story. In anticipation of a possible bad patch, it is recommended to diversify quickly, because all the projects you want to invest in risk not being successful. If some will surprise you in a positive way, others will encounter unexpected difficulties, so you might as well prepare for them.
10. Accept toasts like any entrepreneur
Investment is not always synonymous with a success story. And yet it takes a long way to get there. A path strewn with stones and if you fall, you have to accept the misstep and learn from it. The minimum is to be aware that zero risk does not exist. In general, half of your investments will go to waste, a quarter will simply stagnate, and the other quarter will experience success.
11. Not investing your last savings
We know that playing Business Angels is not within everyone’s reach. If you find it difficult at the end of the month that you repeat the calculation of your runs in cash or your electricity bill, then don’t! To be a Business Angel you need the funds. And with good reason…
12. Money bet, money lost
Not all startups are destined to become international corporations with 10-figure revenue. Unfortunately, some do not even go beyond the TPE stage. Whoever invests their money in a startup must be ready to lose it, if you don’t want to be constantly in agony and put pressure on entrepreneurs.
These are the 12 key points that depend on an investor who wants to become a Business Angel. In the case of a mirror effect, this applies to the entrepreneur who must choose his Business Angel(s). But be careful! Business Angels are not (all) angels: Bad practices exist and we recommend you read “Business Devils: Bad Practices That Can Be Encountered” by Guilhem Bertholet.