“In both entrepreneurship and angel investing, there is nothing like doing it. Nothing.” (Amis and Stephenson, p. 75.) This implies that when evaluating your opportunities, your knowledge and ability to determine a good deal will increase with your experience of taking the steps of investing. I think a similar statement can be made about being an entrepreneur. There is no end to planning and evaluating, we can direct as much time as we want to this. For may of us, and I mean me, a process of analyzing anything can be a paralyzing event that causes us not to act. The best part of the “Winning Angels”, is that it provides a detailed framework in all its 7 fundamentals. The path of evaluating and decision making laid given to us in much detail from Amis and Stephenson can be used both by us as entrepreneurs as well as the Angel Investors that it was meant for. Although, Amis and Stephenson preface the decision-making framework with stating “Good judgement comes from experience and experience comes from making bad judgements,” the evaluating process they lay out can help many of us come to a decision.
Start-up Entrepreneurs and Angel Investors seem to have a similar restraint in capital, time, and resources such as social capital. We may not have the luxury of making a “bad judgement” for the sake of gaining experience. Limited capital coupled with a low level of social expertise to rely upon restricts us from a wrong decision. However, Amis and Stephenson separates success or failure from the evaluation process. They state that a huge win with a single 1990’s internet start-up does not prove that the investor knows anything about early-stage startups, as well as the inverse if you were to lose 10 times on an investment you may also not know anything. The process helps but experience in deal making is what give you the insight to deal making.
This biggest takeaway for me in the Evaluating section is how to assess and manage risk. Angel Randy Komisar (Amis and Stephenson, 2001, p. 105) states that “I go in and invest my time to remove the risk that I know how to remove. And then I pass it on the operating guys to take out the next level of risk.” The book moves on to examine different types of risk but to me the real lesson is the importance of Social Capital to involve other Angels with different backgrounds and expertise as well as put together teams that work cohesively together for a broader experience.
The Harvard Framework is one of the focal points of this fundamental. Amis and Stephenson give the reading Angels a guidepost to connect, define, and evaluate their opportunities. The Harvard Framework originally developed by the Author Howard Stephenson in Harvard Business School and since has been further developed to be utilized in many other facets of business. The framework focuses of four elements, People, Business Opportunity, Deal, and Context. A good deal would be one that there is a relevant level of each of the four elements and they work cohesively together to create the opportunity for success. The absence of one of the elements would lead to a bad deal and opportunity for failure. The way they interact with one another being the crucial measurement for the opportunity for success, the Context of the deal being the larger, macro environment the deal resides with the other three elements of the deal being a recipe for the success.
Again, this fundamental provides the guideline and boundaries for an Angel to connect, define, and evaluate their deals. Giving definition to critical points that will indicate to them if a deal is correct for them as well as helping the Angel to create an overall strategy and mission. All the while, we are given the opportunity to learn from the viewpoint of the Angel Investor.
Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.