I heard Nick Hewer, ex The Apprentice voice-over an advert warning about rogue investment scams. And wisely advising people of the risks of silly investments. Good advice. However, every business we work for started with investment. Our pensions rely on sound investments. So Nick or any adviser’s warning about risk is about understanding where you are putting your money. It’s why at Dorset Business Angels, we are part of UKBAA – UK Business Angels Association, who work with the Government, HMRC and the FCA to regulate the investment into the start-up and growth business markets – i.e. the angel investment which is certainly not the Wild West! The process experienced angels follow – people who invest into start-ups and early stage growth businesses – is in fact similar to that of a Fund Manager investing in large companies, bonds or other sectors of the market. Let me share some insights.
How a Fund Manager Invests Our Money
If you, like me you have pensions, savings and ISAs then you will have working behind these products a Fund Manager. Investopedia is the largest financial education website in the world. So first on to the WHO are Fund Managers? Investopedia has a nice succinct definition of Fund Manager Responsibilities: “Primarily, fund managers research and determine the best stocks, bonds or other securities to fit the strategy of the fund as outlined in the prospectus, then buy and sell them. At larger funds, the fund manager will have a support staff of analysts and traders who will perform some of these activities.” More. And KAPLAN SCHEWSER (the world leader in providing premier Chartered Financial Analyst exam prep materials), has a useful few words on “What Does a Fund Manager Do?” some key parts echo what I will write about what angel investors do in a while, “A large component of a fund management position is research… companies…meet with investment analysts and company managers to better understand pertinent financial information. They also likely have a team of financial analysts…to do more in-depth analysis on firms, markets, and economic variables. This helps them make recommendations and predictions about future prices and trends.” More.
It’s Not So Different
Fund managers have hundreds of hours experience. Angel investors, have decades of experience in business.
So WHO are business angels?
A typical profile would include:
- All HNW and / or Sophisticated Investors more
- Successful “exited” entrepreneurs.
- Retired senior executives.
- Family or inherited money.
- Those who are involved with their own business with access to funds.
- Those willing to invest time as well as cash.
- Wanting to “give back” and have fun!
What do Business Angels Do?
Like fund managers, this broadly includes:
- Research for plans, pitches and companies from networks – in our case this includes accountants, investors, financial services companies and directly from companies seeking investment.
- Angel networks usually analyse the plans, financials and forecast and sift through before selecting the best for presenting to members.
- At pitch events, rigorous questioning leaves the better businesses taken to the next stage for investors to do due diligence. Investor angels similar to fund managers and analysts will usually have sector specific areas of skill and experience that they stick to.
- Angels do not rely on one investment, they usually make several, building relationships, and a portfolio over the years. For more on how this, read the Dorset Business Angels About Us page.
People and Business Investment
So angel investment is not the wild west. There is a higher level of risk with start-up businesses and those in early growth stages. Equally the opportunities for growth are there too. The process experienced angels follow – people who invest into start-ups and early stage growth businesses – is in fact very similar to that of a Fund Manager investing in stocks, bonds, or securities. It starts with broad based research, more detailed analysis, numbers, people, due diligence, managing risks and opportunities and creating a portfolio over a number of years. And of course it’s about investing in people and business.
Peter Eales BA Hons Chartered Marketer FCIM FIDM
Founder Director Dorset Business Angels
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