What do angel investors look for when considering investment opportunities? And what separates the success stories from the also-rans (or even crashes)?
Recently I had the chance to discuss this with a successful angel investor and financier, Peter Mountford. Over two decades, Peter has invested in an array of early stage companies, across different sectors, and lived to tell the tale. He’s helped companies with financings, listings and shells, and is an experienced Chairman and non-executive director of private and public companies. He is also the Chairman of Heropreneurs, an organisation formed to help ex-service men and women become entrepreneurs. This cross-sector experience and diverse skills set gives a rare viewpoint valuable to both entrepreneurs and other investors.
Peter’s portfolio companies have included GW Pharmaceuticals plc (developer of cannabinoid pharmaceuticals for pain relief), RWS Holdings plc (Europe’s largest technical translations business), Buildspan (distributor of consumables into the construction industry), Bradwell Aggregates/ Karrimix (aggregates supplier), WJ Furse (lighting protection equipment), Cipher Surgical (surgical medical devices) and Exomedica (developer of medical technologies).
Investors are often renowned for keeping their words brief, so from a recent email exchange and in his own words, here are Peter’s list of common themes he’s identified from successful investments:
- Great management teams that truly understand their businesses and that have the same objectives as shareholders in the business. Some management teams just want to raise cash to support their remuneration packages – steer well clear.
- Businesses that have some sort of unique position in their market place – whether this is a service, technology, or product. So its got to be “special”.
- The business model has got to be workable. No point in selling a product in volume unless a profit can be made from it.
- Operating in a market that is growing or that can be created.
- Well funded with strong balance sheets or “easy” access to further funds.
- More competitive than their competitors, ie have a USP.
- The right “in price”, ie if you overpay at the start the chances are that you will never recover.
- The ability of the business to grow in value and achieve an exit either through an outright sale or IPO.
- Not a start-up! Although the business could be at a relatively early stage but in this case some of the fundamentals must have already been proven.
As he mentioned in his email, this is a fascinating area and one he could “wax lyrical” for some time. We did discuss it in quite a bit more detail. Different investors could reasonably interpret points in different ways. But after reviewing the list, I think the distilled version does it justice, and may prompt thought and exploration by curious entrepreneurs and investors.
What makes angel and other private investors particularly interesting is that they are investing personal funds, rather than earning a fee on managed funds. You live and die by the sword of your investment decisions. This makes the importance of understanding your own temperament and style so important. Probably more than any other individual facet. I’ve certainly found this through my own approach to investing in value based stocks (described in Lessons from Medtech?). Stray from what works for you, or what’s consistent with your own temperament, and you lose money even where others succeed.
And it takes time to get to know yourself, and a willingness for self-examination and revision. Maybe that’s the single thing that all successful investors really have in common?
This post was written by Raman Minhas. Raman is the CEO of ATPBio, a consultancy providing business development and corporate development support to biotech and medtech. He is also a private investor in healthcare value based stocks.