Three Days of Angel Investing Insights

2/9/11

What a great week we just had for Northwest regional angel investors. Checkbooks were left untouched but minds were impacted by many insights shared among both highly experienced and new investors. Importantly, the insights shared by angels are just as valuable for entrepreneurs since a highly functional partnership between the two is critical for success. The approach to deal negotiation was that of helping the entrepreneur with his or her wealth accumulation goals.

Why is this important from a policy perspective? According to the Kauffman Foundation study in December of 2009, companies less than five years old created 40 million jobs over the past 30 years while large companies netted zero new jobs.

Investing and entrepreneurship are clearly two sides of the same coin. Investors won’t make sufficient returns to compensate their risk-taking, and entrepreneurs won’t meet their personal goals if a venture is not successful. Angels and entrepreneurs, along with some luck and timing, are both necessary for success. This week drove that notion home over two events covering three days.

Starting last Wednesday at the Northwest Energy Angels event, members from six regional angel groups enrolled to hear Bill Payne, the ultra-experienced angel investor and mentor. He led the Angel Capital Association’s Power of Angel Investing Workshop which focused on the importance of the due diligence process and determining reasonable valuations for investment. Angels need to know how to conduct thorough due diligence that is prioritized on the critical factors yet not overwhelming to entrepreneurs. Research shows that the amount of due diligence effort conducted by angels is highly correlated with returns; the more due diligence is conducted, the better the success rate. However, the key is to focus on the relevant issues that really matter for a particular venture and not get stuck in the weeds of too much detail.

The workshop started with a panel of experienced investors and attorneys including Dan Rosen, Chair of the Alliance of Angels, Geoff Entress, Partner at Voyager Capital, CJ Voss, attorney at Stoel Rives, and Kiki Tidwell, board member of NW Energy Angels. Rosen emphasized the importance of critical analysis of the alternatives a venture’s customers have as substitutes for the venture’s product or service. Entress pointed out that customer calls are critical to validate why they purchase. Understanding customers’ decision-making criteria is just as essential for entrepreneurs as it is for investors. The issue of founders’ share vesting is important for both investors and the other founders to manage precious equity if one of the founders decides to leave shortly after the funding. Retiring some of that founder’s shares is necessary … Next Page »

Byron McCann is a founding partner of Ascent Partners Group, and the co-chair of the Northwest Energy Angels. Follow @

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