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The press release that I was sent with this books states:
The stereotype of the “angel investor” is a retired entrepreneur who see potential, asks tough questions, takes a large stake, and in a few years makes a massive return in an IPO. This outsider fills the gap between the venture capitalist and the professional investor, swooping in with cash and expertise to brings dreams to fruition.
Unfortunately Dr. Scott A. Shane observes, this stereotype bears no relationship to reality…
Which sums the book up nicely. According to Shane everything that is common knowledge about business angels (in America at least) is wrong. For example the typical (median) angel investment is just $10,000 and up to 40% of “investments” are debt rather than equity. It doesn’t stop there however, he bust just about any business angel myth you can think of. It certainly presents a very different impression of angel investors to shows such as Dragons’ Den.
There’s a lot of great content in the book so I’ve summarised several tips in the lists below.
Tips for angel investors:
- You’re more likely to be successful if you are a member of a angel investing group, although this may be because members of angel groups tend to be accredited (sophisticated) investors.
- Focus on the exit that the business can realistically make.
- Invest in an industry that you know.
- Get the valuation right.
- Structure the investment to minimise risk.
Tips for entrepreneurs:
- Angel investors don’t always provide “smart money”, many angels are passive investors.
- Angel money is likely to be more expensive than friends and family or bootstrapping.
- Consider debt rather than equity.
- Few businesses ever get angel funding – you might be better off spending your time on other activities.
For both angels and entrepreneurs:
- Read the book to find out lots more!
Scott Shane is an angel investor himself and a member of the North Coast Angel Fund. As well as being a business angel, Shane is a Professor of Entrepreneurial Studies at Weatherhead School of Management, Case Western Reserve University. He’s written or edited eleven other books including The Illusions Of Entrepreneurship which I reviewed earlier this year and over sixty articles on entrepreneurship and innovation management. The American business angel Frank Peters has an interview with Shane on his blog The Frank Peters Show.
Whilst the book is about angel investing it wouldn’t surprise me to find that a lot of the myths from the USA have come across the pond and are equally untrue over here. The tips for those looking for angel finance and those wanting to be successful angel investors are sure to be useful wherever you are based.
Like The Illusions Of Entrepreneurship, Fool’s Gold is an fascinating book and well written book, if you’re at all interested in angel investing I’d recommend that you buy it.
You can buy it from Amazon UK or Amazon USA.
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This blog is about business opportunities and ideas that I spot, think of or hear about and think are useful and interesting. It is intended to provide ideas and inspriation for you to help you find the right business idea for you to then grow it into a successful business.
Well that’s taken the glamour out of investing. With Dragons den it’s more about the dragons contacts than their money. As they say it’s not what you know it’s who you know.
I think the best reason to go on Dragons’ Den is the publicity. I wouldn’t want to work with some of the Dragons’ after having seen them on the show.
Contacts and advice might be main reasons for many to seek angel investment. It’s nice to have experience and contacts on board.
Real angel investments are also small here in Finland and so are profits (taking into account funding risk and liquidity). Even an investment of 10 000 euros won’t do much if you’re running a serious growth oriented business. If you just need the money it’s usually easier to go to bank or use public venture capital.
Lennot,
Contacts and advice are another myth according to Shane, most (American) business angels bringing neither.