Understanding Early-stage Investing (Part I)
The following 3 Key Lessons will serve as a guide before making any early stage investments:
Assess your Risk level: Generally, angel investments carry a relatively high degree of risk. It involves making a bet on an idea, because the businesses are not fully developed. It is therefore important to assess your risk level and appetite before making any investment(s). It is also important to have a good understanding of the industry you are investing in. This will reduce any element of surprise along the way.
Assess the Investment Opportunity. It is not every investment opportunity that one should invest in. Some of the ways to determine a good investment opportunity is to ascertain if the business is solving a real problem or providing a service of value, if the market large and growing, if the opportunity is subject to disruption, if there are low barriers to entry and if the business is scalable.
Assess the Entrepreneur: No one can be more passionate about a business than the entrepreneur. Therefore, before investing, gauge how much passion the business owners exude when talking about their business. What drives them? Also, check their history and track record and ask necessary questions to assess their competence beyond what is written on paper. Are they people of integrity? What is the level of their commitment to the business? Are they open to your idea? Is there a team in place? Who does the team comprise of and what are their roles?