Winning Angels: the seven fundamentals of early-stage investing
Sitting down to read Winning Angels I was immediately struck with one simple thought; this is not a book written with a person like myself as the target audience. This book was written for a young person (32) that has over $150k sitting in the bank, a person (45) who has a net worth of $3m, or an older person (58) with $2m net worth (Amis & Stevenson, 2001). The thing that they all should have in common is that they can accept the risk of losing money by investing in start-up ventures with the prospect of profiting off the success of only a percentage of invested ventures. After reading for half an hour a light bulb was switched on, and I realized that I had been looking at the book in the wrong light. I was not a person that has the financial footing right now to be an investor, but if I understand how investors look at ventures, I can tailor my efforts to be an attractive investment.
The way my brain processed the concept of how Angel investors, investors that invest in businesses before they are successful enough to secure funds from a traditional venture capitalist, look at investments was that of playing the lottery. The lottery is always slanted to the house to make a profit or they would not be profitable. The way that I processed the information was if you knew that one type of scratch-off tickets paid out ten or twenty dollars at the cost of one dollar. If you dismissed the non-attractive tickets, you could secure your odds of getting a winning ticket on a 1:10 ratio. Even if you lost nine out of ten you still at least break even. However, the more you play the odds improved to 2:10 or 3:10 of finding a winning ticket. With those odds, any person understanding simple math would buy those scratch-off tickets to make a profit.
The big difference between the way that Angels invest versus this winning ticket scenario is that the Angel investors can look over business plans and proposals, this allows them to evaluate if the venture has the possibility of being a winner.
Source – Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.