New to venture and angel investing? Here’s what you really need to know...
Moving into venture and angel investment is increasingly daunting. Endless pieces of conflicting information and the ever-evolving world of digital finance means that there are more entrepreneurs than ever. Because of this, many investors are tempted to base their judgements on the thoughts of advisors and associates or, instead, water down the investment risk so much through, for example, crowd funding schemes that they also slash their rates of return. Working in capital investment and private equity across the UK and US since the 90’s, I established my own firm, the Rosemont Group, in 2003 and support those in the digital tech, finance, luxury goods and renewable energy industries. From working to launch businesses across the globe, these are some of our top considerations for the investors of tomorrow.
How to start in venture and angel investing?
Starting in investment is difficult as, to an individual investor, it’s an unknown, risk laden area. It doesn’t matter that other investors are doing it, until you move into the area yourself, it’s an extremely unknown quantity. Beyond financial input, these three principles form some initial considerations for all new investors:
- To invest in something you are fundamentally interested and knowledgeable in - stick to your sector.
- Get as much protection as possible (particularly dilution protection and anti-dilution protection).
- Find a concrete way to make sure you are not forgotten about once you have invested your money. All these points tie into each other and, when used together, significantly reduce risk and strengthen your influence.
How to manage risk as an investor
Risk goes hand in hand with reward, so it’s a big factor within VC. However, being mindful about your investment projects can work to reduce this. One key point is to never underestimate the importance of familiarity. Investing in industries you’re experienced in and passionate about reduces risks to your investment for the simple reason that knowledge is power and buys you influence that money alone cannot. Look at it like an entrepreneur, an investor who has a thorough understanding of their industry is valuable far beyond a financial contribution. This helps define your role as an investor as someone who is notable, respected and has genuine insight. This gives you influence to take a firmer steer on the direction of a project – after all, it’s a tall order to ask someone to trust your judgement on a vision they have developed and nurtured from nothing if you lack insider industry knowledge.
Maximise your relationships with entrepreneurs
Founders these days are getting more and more creative, so visions often pivot at the last minute. Ideas are being pitched constantly and a new venture can change at a moment’s notice if the founder so wishes. Because of this, it’s important to go with this trend rather than to push against it. Remember, as an investor, you are buying into someone else’s dream and are there to build this into a reality rather than to recast it into something different – this goes double for investments houses. In short, it’s critical to be flexible and be on the same page as the entrepreneurs. Work closely with them to ensure you are not forgotten and back their ideas 100% - before even embarking on a partnership – to develop a shared confidence and truly united dynamic.
Is crowd funding a shortcut to success?
The short answer is no as it’s a technique designed to support entrepreneurs over investors. To me, crowd funding (CF) is more of a fad, a .com boom. Essentially, the trouble with CF is the danger of having a large number of investors. By the time hundreds of these smaller investments are made, the end-product and monetary outcome becomes very diluted as people own such a tiny portion. For an investment to bear fruit, you must inject more initially and take on that share of the risk. If you are committed and an absolute expert in your field though, there is certainly opportunity in CF but you must dig deep. Investing in a ‘unicorn company’, one which is unique, is worth it regardless of the funding methodology. Like a unicorn however, these opportunities are incredibly elusive, especially as the CF initiative has exploded across the Internet.
For beginners, investment success is built on the foundations of knowledge. Once you have that, it’s essential to ensure your entrepreneurs believe in you as much as you believe in them and to work together in driving the business forward.
**About the author ** *Freddie Achom is founder and chairman of the Rosemont Group which specialises in sourcing and funding early-stage tech start-ups and innovative entrepreneurs. Freddie is also head of the firm’s sister organisation, Rosemont Foundation which supports disadvantaged young people launch businesses of their own with financial support and entrepreneurial guidance. *