3.3 Analysis Lenses for Gaining Insight Both Angel and entrepreneur will benefit from discovering key insights into their company’s long-term success. These insights may help you make a go/no-go investment decision, negotiate the term sheet conditions, and determine a coaching or governance structure going forward. Think of this as using different lenses, or analysis tools, through which you view your due diligence activities, and make the most of those 20–60 hours. Insights are created by combining this analytical thinking with your own experience and intuition. The following are a few of my favourite lenses. I tried to focus (LOL) on lenses that contain some of the best new ideas in entrepreneurship and Angel education in recent years. Most of these concepts and books are required reading in my university entrepreneurship degree courses. Think of this as a guide to the popular literature that might inform your own due diligence lenses.
3.3.1 People – The Team: Human Capital, Intellectual Capital, and Social Capital
According to Dan Mothersill in Age of the Angel : “At least 60% of an Angel’s decision to invest is based on the strength of management. Smart Angels know that the right management team can take a second-rate technology and build it into a market- leading company. The converse is equally true. A killer technology – no matter how potentially disruptive – created by a couple of geeks with little business experience will die a death that is quick and costly (to the Angel).” Chris Devore puts it this way: “As investors, we believe that we’re in the talent business, first and foremost. We’re not in the ideas business and we aren’t in the money business; we are talent scouts. We are trying to find teams of people that have the rare combination of insight, skill, grit, persistence, vision and drive to take a good idea in an interesting category and do all the things that are required to drive that idea to scale. The opportunity has to be interesting, but it really has to be a team on a mission, a band of pirates going out to conquer the world. That’s the most important characteristic and everything else falls out of that.” (Maher) Key concepts here include human capital, intellectual capital, and social or relationship capital. These so-called “intangible assets” of the company are usually far more valuable than the tangible assets. I interviewed more than 20 Angel investors for a NACO study to create a due diligence screening tool that would assess trust, ethics, character and integrity (Gedeon, 2010; 2011). This was published in the second edition of Age of the Angel 2.0. I would summarize this study as “No trust – no deal. But how do you assess and build trust?”
56 A Practical Guide to Angel Investing
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