Angels - Are they Real?
William Cate
Published February 2000
[http://home.earthlink.net/~beowulfinvestments/]
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
They're real, but few survive. High risk investing is dangerous to
your bank balance. The process toward extinction is that an angel risks
money in one venture. It fails. Then, he joins a group of angels and risks
money in another venture. It fails. At this point, the angel usually hands
in his or her wings.
To be an angel, you must have considerable discretionary income.
This is why most angels are attorneys, accountants, medical doctors or
successful small business people. Attorneys and accountants often form
angel groups from their client base. Their goal is to take the ride on the
roller coaster without paying for the ticket. Their clients invest in the
project and they get a piece of the action. Since the action is usually
bad, all they get from the effort is a reduced client base.
Angels want to invest within fifty miles of their location. This
allows them to visit the office or plant of the investment on a regular
basis. As the company starts to fail, the proximity card encourages the
angel to try to take over the business investment. This mistake is often
made by successful small business people.
I'd defer to a study on the odds of attracting an angel to your
company. However, my experience suggests that an angel will invest in about
one company out of every three hundred that send the angel their business
plan. My experience is based upon working with San Francisco Bay Area
Venture Capital Clubs over a decade ago. Given the greater investment
interest today, your odds may be better than 1-in-300.
Eighty-five percent of small businesses fail. Among the 15% that
succeed are franchises and professional offices. My guess is that an angel
has about one chance in ten of making money on a risk capital investment.
The angels think they can beat the odds. They're wrong.
Most attorneys, accountants and medical doctors achieve their
social position and income by believing what they read. As a student, if
you question the data in a textbook, you are unlikely to pass the final
exam. This pattern of read and believe gets the student from first grade to
medical school or law school. Believing what you read in a business plan is
often a mistake. Professionals tend to believe the written word. Doing so
as the basis of a risk capital investment is fatal. As more than one
professional has told me when they turned in their wings, "I guess I'll have
to raise my fees to offset my business loss." I've often wondered if
barring professionals as angels wouldn't lower legal and medical costs.
Small business owners believe they are "smarter than the average
bear." It's their ego that often clouds their judgment. If you don't
believe that you've made a mistake, you'll dump more money into a black
hole investment. It's this group that are most likely to turn in their
wings as they file for Chapter 11. "There's a time to hold them and a time
to fold them." Successful small business people don't believe in folding.
There are always angels coming into the Market. We live in boom
times. The population of angels is growing. If you can catch a nearby
angel, do it. It's best to catch them before they see the financial fire
that awaits most of them.
As with buying lottery tickets, there are a few successful angels.
I'd like to see a study of how long they last, if they beat the investment
odds.
To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
About the Author
He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]