Business Angels come from all sorts of back grounds.
Many are successful, some very successful.
However, does that mean that they will always pick a good investment? No…
A shocking fact buried deep in the Nesta report about business angel investors (Siding with the angels, 2009) declared that the number of successful exits reduced when business angels became active investors.
Yes, that’s right, the conclusion is that angel investors and entrepreneurs do better when the business angels remain the investors who look after and care for their investment – as a non-exec director or with an observer role. They do less well when they become an executive with day to day responsibilities.
How can this be true?
Surely, you might think, a talented team with a talented Business Angel investor who is involved day to day, is more likely to succeed than a team in which the investor takes a back seat?
Indeed. It is possible of course, that the investments in which the Business Angel typically gets involved are weaker – and that is why he feels the need to jump in.
But, regardless, the business failure is largely due to the T-problem – that is the Team.
You see, it isn’t enough to have talented individuals (as anyone who witnesses England at the football World Cup will know), you must have a team that fits together.
And, the temptation of the Business Angel to ‘get involved’ in the team should be avoided. The statistics tell us that he would be better to find a better investment or send back the entrepreneurs to build a stronger team themselves.
So how do you assess the team?
Which begs the question, how do you build a better team? In fact, how do you assess the team you’ve already got to know whether or not it is a strong team?
This is a very tough question. If it was a matter of potential market share – we could look to a specialist who can assess market potential, or establish IP or Patent rights. If it were a matter of money, we would go to a corporate finance expert and ask their opinion. But team? Who do we ask and where do we go?
My gut feeling
Beyond a few ‘after the event’ actions – such as credit checks and references, most investors rely on their gut feeling. Beyond, ‘met the guy(s), like them’, what more do we do?
Well, over the years, very experienced and successful VCs have built up an instinct, a gut feeling.
However, if you are not a very experienced VC (perhaps just a business angel of a few years experience or a successful entrepreneur rather than a 30 year experienced expert in early stage business) then what do you do? Well, you could rely on other people’s experience, but apart from that?
That’s why the new Executive Team Tool (eTeamTool) offers an interesting and sensible alternative to guessing about the management team. (The eTeamTool has is a MediaModo LLP product, who also own www.iBusinessAngel.com).
This tool uses 6 attributes to test each executive team manager and then allows the user to plot each executives results on the same map to show overlap, duplication or the degree to which the team is complementary.
And, the interesting thing is that it doesn’t depend on the skills, but rather it assesses the key attributes that VCs look for. This means that your executive team shouldn’t be built based on skill bases – such as an IT person, a marketer or finance person. For early stage and fast growth companies, these skills can be bought in.
Instead, the composition of the team should ensure that all the key attributes are present – that is, an ability to focus and understand the core market plus the willingness to be open to ideas, advice and react to market behaviour. Lastly, the team needs to be led by someone with charisma and the ability to set a vision and persuade others to work to that vision – even though they might be be paid better by other companies.
The critical thing here, is to put skills to one side and ask yourself the question, can this team bring in what ever skills are (or may become) necessary to make the business a success?
Remember also, that the current hot product won’t always be. Instead, the business needs to develop a constant stream of invention and new product development. Can this team do it?
In otherwords, we are asking, does the executive team have the necessary leadership to see the business to profit and success?
This is the most important question for angel investors and entrepreneurs too. This is the big T or team problem that successful angel investors need to resolve for each and every investment.