天使投资人 (angel Investor): 有钱人怎么玩投资
美国现在有 500-720 万人被认证为是“投资人”。这群人大约占了美国总人口的 1%，每人的平均年收入超过 20 万美元，或净资产超过 100 万美元。
投资界将资金投入到创业企业中的这种趋势被称为是天使投资。根据罗盛最新的调查，美国有约 75.6 万天使投资人，他们提供天使投资或参与朋友、家人的创业融资。
天使投资人 (angel Investor): 有钱人怎么玩投资
美国现在有 500-720 万人被认证为是“投资人”。这群人大约占了美国总人口的 1%，每人的平均年收入超过 20 万美元，或净资产超过 100 万美元。
投资界将资金投入到创业企业中的这种趋势被称为是天使投资。根据罗盛最新的调查，美国有约 75.6 万天使投资人，他们提供天使投资或参与朋友、家人的创业融资。
As a startup investor, you need to understand that the investments you make are highly risky and illiquid for 5-10 years on average. With big risk, however, comes the potential for incredible returns. To give you an idea of what’s possible, if you would have invested $1,000 in Facebook in 2005, it would approximately be worth $624,500 today, which is a 62,450% return on investment (ROI). Or imagine you invested $1,000 into Airbnb in 2009, which today would be worth $589,667- not a bad ROI. Granted, only approximately 15 companies per year reach that success level out of hundreds of thousands, but there are still smaller scale successes that result from acquisitions.
Charles Rotblut, CFA, Wall Street Journal expert panelist, and VP & Editor for the American Association of Individual Investors, recommends that 5-10% of your total investment portfolio be allocated in high risk assets, such as buying equity in early stage companies. But now the question is, where should you look for deal flow? Unless your name is Peter Thiel or Dave McClure, high quality investment opportunities are not likely knocking on your door, though now, there are a few equity crowdfunding platforms for startups that are very useful for sourcing deals. In addition, here is a compiled list of 6 useful digital tools that will help you in the due diligence process:
Crunchbase is a great source of information to use while researching a particular company. The platform is operated by the popular tech blog, TechCrunch. Via this platform, one can track all the important information from a startup, such as team members, core information of the business, names of prior investors, video tutorials, etc. The only problem with Crunchbase is that the information is not always accurate since anyone can go on Crunchbase and modify the content. Regardless, it is a useful tool to provide background information on the prospective company you are looking to invest in. Plus, Crunchbase is free.
If you are looking for something more advanced then you might want to look at VentureDeal, which offers a great product at $25 per month. What I like about VentureDeal is that in addition to information on a respective business, which is usually pretty accurate, it also provides you with the emails of the core individuals, simplifying the process in the event you want to connect.
Zendesk is a customer support tool. As seen in this post on Quora, some angel investors use it to treat startup investment requests as tickets. Via Zendesk, you have the option to set follow ups in order to track the progress of the startup over the course of time. As explained in the post from Quora, this investor normally gives himself 3 to 6 months before pulling the trigger to invest in a particular startup.
With Alexa, you will be able to see what type of traffic the platform is receiving. Especially if the startup’s primary business is online, it might be a useful data point to know. Alexa offers important information such as from where the site is receiving traffic, the user profile visiting the site, and the other websites that are referring users (or linking in). A good alternative to Alexa could be Compete.
You might be surprised to see this micro-blogging tool cited here, but the power of Twitter is incredible. By typing the name of the company on the search bar you will have the opportunity to obtain a front row ticket to the level of engagement that customers have with the company. It is also a fantastic tool to track the news and press articles that have been published about that particular startup.
This professional networking site is a wonderful tool to verify the background of the founding team. With Linkedin, for the most part, you can gain access to individuals associated with the company and dive into their background. Another way to gain value from Linkedin is finding individuals who are mutual connections with the founding team members. This allows one to get references and obtain a better understanding of the founding teams’ character traits, which is a key factor early on.
This platform brings all the elements of a business transaction together and provides all the necessary tools for managing and closing a transaction. CapLinked provides the opportunity to invite others into the process, and offers control accesses where you can view all the paper work. The company states on their website that their goal is to streamline the process of the transaction, and offers deal rooms where both sides of the transaction are able to share information. CapLinked is a paid service where the price varies based on the profile of the customer.
All that being said, CapLinked is most useful for bigger acquisition deals. If you are looking at pre-revenue startups still in the seed stage, this platform may not be the best fit.
RockThePost is an online investment platform that connects accredited investors with startup companies. The company was founded in 2010 and since then it has helped in raising millions of dollars for startups.
Mattermark is a tool that helps to quantify the growth of privately owned companies for investors. The company has a newsletter that showcases the hottest deals in the private market. The goal of Mattermark is to help investors in making informed decisions.
by Alejandro Cremades http://www.alleywatch.com/author/alejandro-cremades/
Why are you investing? It’s OK if you have many different answers for this question, but there is a big problem if you have no answer at all. Investing is like driving – it is best done with your eyes open!
Joking aside, having clear reasons or purposes for investing is critical to investing successfully. Like training in a gym, investing can become difficult, tedious and even dangerous if you are not working toward a goal and monitoring your progress. In this article we examine some common reasons for investing and suggest investments that fit those reasons.
No one knows whether the pension system will survive the coming decades. It is this uncertainty and the reality of inflation that forces us to plan for our own retirement. You need only open the newspaper to find out about a company that is freezing pensions or a new bill that will cut government payouts. In these uncertain times, investing can be a tool to help you carve out a solid path to retirement. There are three maxims that apply to investing for your post-work years:
The more years there are between today and your retirement, the more years your money has to grow. You have to keep in mind that you are fighting inflation when you are planning to retire. In other words, if you don’t invest your money to outpace inflation, it won’t be worth as much in the future.
The older you are when you start, the more risk averse you will have to be. This means that you will likely use guaranteed investments such as debt securities, which have lower returns. By contrast, if you start young, you can take larger risks for (hopefully) larger gains.
Investing for retirement is similar to long-term investing. You want to find quality investment vehicles to buy and hold with the majority of your investment capital. Your retirement portfolio will actually be a mix of stocks, debt securities, index funds and other money market instruments. This mix will change as you do, moving increasingly toward low-risk guaranteed investments as you age.
Achieving Financial Goals
You don’t always have to think long-term. Investing is as much a tool for shaping your present financial situation as it is for forming your future one. Do you want to buy a BMW next year? Want to go on a cruise from Seattle to Morocco? Wouldn’t a vacation that was paid for with dividends feel nicer?
Investing can be used as a way to enhance your employment income, helping you to buy the things you want. Because investing changes along with the investor’s desired goals, this type of investing is not like retirement investing. Investing to achieve financial goals involves a blend of long-term and short-term investments. If you are investing in the hope of buying a house, you will almost certainly be looking at longer-term instruments. If you are investing to buy a new computer in the New Year, you may want short-term investments that pay dividends or some high-yield bonds.
The caveat here is that you need to pinpoint your goals first. If you want to go on a vacation in a year, you have to sit down and figure out the cost of the vacation in total and then come up with an investing strategy to meet that goal. If you don’t have a set goal, the money that should be going into that investment will doubtless be used for other purposes that seem more pressing at the time (Christmas presents, a night out, and so on).
Investing to achieve financial goals can be very exciting and challenging. Combining the pressure of time constraints with the fact that you’re not usually dealing with large sums of vital money (as in retirement investing), you may be less risk averse and more motivated to learn about higher yield investments (growth stocks, shorting, etc.). Best of all, there is a tangible reward at the end.
Reasons Not To Invest
Just as there are two main reasons to invest, there are two big reasons not to invest: debt or a lack of knowledge.
In the first case, it is a simple matter of math. Imagine that you have a $1,000 loan at 9% interest, and you get a $1,000 dollar bonus. Should you invest it or should you pay down the debt? Short answer: pay down the debt. If you invest it, the money has to make a return of well over 9% (not counting commissions and fees) to make it worthwhile. It can be done, but it is much easier to find good returns on investment without having to fight losses on your debt.
There are different kinds of debt – credit card, mortgage, student loans, loan sharks – and they carry different degrees of weight when you are considering whether or not to invest in spite of them.
When it comes to lack of knowledge, it is a matter of “fools rush in where angels fear to tread”. Throwing your money haphazardly into investments that you don’t understand is a sure way to lose it quickly. Returning to the exercise analogy, you don’t walk into a gym and squat 500 pounds your first day (unless having kneecaps bothers you). In other words, your introduction to investing should follow the same incremental process as weight training.
Conclusion: Allowing for Change
Your reasons for investing are bound to change as you go through the ups and downs of life. This is an important process because the only other option is to invest with no purpose, which will likely result in investing practices that reflect your uncertainty and cause your returns to suffer. Your reasons and goals will have to be reviewed and adjusted as your circumstances change. Even if nothing significant has changed, it is always helpful to reacquaint yourself with your reasons at regular intervals to see how you’ve progressed. Like running on a treadmill, investing gets easier and easier once you actually start.
by Andrew Beattie
Malaysia Angel Tax Incentive
In the Malaysian 2012 Budget, the Prime Minister has announced a tax incentive for angel investors which would allow for an angel investor to be accorded a tax relief of up to RM500,000 p.a, in the 3rd year (after 2 years) of his/her shareholding.
The angel tax incentive is designed to encourage more angel investments from the private sector into early stage companies in technology space. As such, an Angel Tax Incentive Office is set up in Cradle Fund Sdn Bhd to help accredit early stage companies that are seeking investments and also to validate the investments made by the angel investors so that they are able to apply for the tax angel incentives.
Through this, the Angel Tax Incentive Office will firstly act as the filter against those who would seek to abuse the tax incentives. Secondly, by validating these start-ups, angel investors would be assured that the start-ups seeking fund are legitimate.
Angel Tax Incentive Office works closely with Malaysian Business Angel Network (MBAN). MBAN, representing the private sector, will accredit the angel investors, whilst the Angel Tax Incentive Office, representing the public sector, will accredit the start-ups and validate the investments into these companies.
Eligibility criteria of the investee companies?
Minimum 51% Malaysian owned
Company’s core business meets the Business Investment Scheme (BIS) criteria
Company must have business activity in Malaysia for at least 2 years post investment
Cumulative revenue of less than RM5 million and track record of less than 3 years (based on latest financial year results upon application)
What is Angel Tax Incentive?
Angel Tax Incentive is a new initiative approved by the Government to encourage more early stage investments by the private sector. This incentive hopes to reduce the risks usually associated with early stage investments by giving back in the form of tax exemption to the investors.
Who administers the Angel Tax Incentive?
Angel Tax Incentive is administered by the Angel Tax Incentive Office (ATIO) a unit under Cradle Fund Sdn Bhd (Cradle) under the auspices of the Ministry of Finance (MoF).
What is the Tax Incentive’s purpose and ATIO’s role within technopreneurship ecosystem?
The Angel Tax Incentive is designed to encourage more angel investments from the private sector into early stage companies in technology space. As such, ATIO’s role is to ensure that start-ups seeking investments from accredited angel investors are eligible and that investments made into these companies are genuine.
How does the Angel Tax Incentive work?
The investee companies will first have to apply with ATIO to receive qualification for investment under Angel Tax Incentive where they can then obtain a letter to present it to the accredited angel investors. ATIO will then submit all investment related documentations to MoF for approval & endorsement after the investment takes place.
Who provides accreditation to angel investors?
The Malaysian Business Angel Network (MBAN) will accredit angel investors in Malaysia.
What is MBAN’s role in the angel investment ecosystem?
Malaysian Business Angel Network or better known as MBAN is a body that functions like a trade organisation, driving regional and international linkages between angel investors. MBAN is responsible for the accreditation of individual angel investors and angel investor clubs, creating awareness and training for investors, and monitoring angel investment statistics in Malaysia.
Cradle on the other hand, serves as the interim secretariat for MBAN. The network is managed by a pro-tem committee comprising of various government agencies and angel groups including Angelsden, Virtuous Investment Circle (ViC), Pikom Angels Chapter and AIPO Business Angels Club.
How does ATIO work co-relatively with MBAN?
ATIO works closely with MBAN. MBAN, representing the private sector, will accredit the angel investors, whilst ATIO, representing the public sector, will provide qualification to the start-ups and validate the investments into these companies.
What is the investment focus areas covered under this initiative?
Angel Tax Incentive’s investment focus is in diverse areas of high growth technology industries with innovation including the following:
– Advanced electronics and information technology;
– Equipment/instrumentation, automation and flexible manufacturing systems;
– Electro-optics, non-linear optics and optoelectronics;
– Advanced materials;
– Value-add services; and
– Emerging technologies
What does Investee Company mean?
Investee Company refers to technology based start-up who is looking for investment/funding from the private sector.
What are the eligibility criteria as an investee company?
Minimum 51% Malaysian owned;
Must be a Sdn Bhd company and incorporated in Malaysia;
Company’s core business must be in qualifying activities as approved by the MoF;
Cumulative revenue less than RM5 million and has been in operation for 3 years or less (based on the latest financial year result upon application); and
The company must not be wind-up and/or in liquidation.
What is the qualifying period to apply as an investee company?
The qualifying period to apply as an investee company starts from 1 January, 2013 until further notice.
How long is the investee company’s qualification period for investment under Angel Tax Incentive?
The validity period is two (2) years only.
How does my company obtain investment from the investor?
The ideal situation would be that the investee company must already be in talks/discussion with the potential investors before applying to Cradle. The tax incentive would be an enticing motivation for the angel investors to make an investment into the investee company.
If my company currently receives financing from other avenues ie governmental grants or venture capitals, can I still apply?
How do I become an investor?
If you meet the following criteria, you are then eligible to become an investor by obtaining the accreditation certification from Cradle.
Must be a tax resident in Malaysia;
Either considered a High Net Worth Individual or High Income Earner
High Net Worth Individual – Total wealth or net personal assets of RM3 million and above or its equivalent in foreign currencies; OR
High Income Earner – The gross annual income of not less than RM180,000.00 in the preceding twelve (12) months; or jointly with his or her spouse, with gross annual income of RM250,000.00 in the preceding twelve (12) months.
What do I need to do to apply as an angel investor?
To apply as an angel investor, you will need to fill in the accreditation form provided by MBAN (for the time being, Cradle will act as the interim secretariat for MBAN until further notice).
Can I invest more than one company at one time?
Yes, you can invest in more than one company per year but the maximum investment approvals per annum is five (5) only. The minimum amount per investment is RM5,000.00 and up to a maximum of RM500,000 investment per annum in total.
How long does it take for the angel investor to qualify for tax relief? How much?
The investors must hold shares in the invested company for a period of two years prior to claiming the exemption. If the shares are disposed before the two years, the investment will be considered void for the tax incentive purposes.
The investment is qualified for tax relief on the third (3rd) year of his/her shareholding. For example, if an investment is made in the year 2013, the investor will be able to claim for tax exemption when he or she files for their tax returns in the year 2015.
The amount qualified for deduction is equivalent to the value of the investment made to the investee company. The aggregate income should comprise from all sources including business income for the basis period of year assessment.
Aside from cash, can I make in-kind investments?
No. All investments must be made in cash.
How long is the investor’s accreditation period?
Angel investor’s accreditation period is valid for two (2) years. However, it can be renewed if required.
What if I am not accredited by MBAN? Am I still qualified to invest?
In order for the investors to qualify for the tax relief, he/she must obtained accreditation from MBAN before making any sort of investments to the investee companies. If the investors did not obtain the accreditation from MBAN, the investors will not enjoy the tax exemption for any investment that he/she has made.
What are the investment eligibility criteria?
The investment eligibility criteria consist of the following:
Investment must be made into a qualified investee companies/start-ups;
Must not be an immediate family member i.e. spouses, children, parent and grandparent;
Shall be for the sole purpose of financing the activities as approved by MoF;
Must hold the investment for a period of two (2) years prior to claiming the exemption;
Is not disposed of within two (2) years from the date the investment is made;
The angel investor must not hold more than thirty (30) percent of the total equity of the investee company;
Minimum amount of RM5,000.00 per investment and up to a maximum of RM5000,000.00 investment per annum in total;
Shall be a maximum of five (5) investment approvals per annum;
Investments made are to be paid in cash and in full and not in-kind;
New shares issued and reflected in the Shareholders’ Agreement;
The shares issued to the angel investors must be in the form of ordinary shares only. If preference shares are issued, it cannot be converted into a loan or call option, but can only be converted into ordinary shares.
When is the investment’s qualifying period?
The angel tax incentive is open for qualifying investments made from 1 January, 2013 to 31 December, 2017. The qualified investment must be made by qualified investors into a qualified investee companies. The investment made must be approved and endorsed by the Ministry of Finance.
When does the two-year holding period for the investment begins?
It starts on the date the fresh cash injection is made into the company.
What happens if the investment gone wrong halfway through the investment period?
The risks are to be borne by both the investors and the investee company. However, the tax relief is still applicable for the investors on the 3rd year of his/her shareholding.
What is the maximum share percentage in every investment?
The maximum share percentage in every investment is thirty (30) percent of the total equity of the investee company.
What is the minimum and maximum amount for each investment?
The minimum investment amount is RM5,000.00 each up to a maximum of RM500,000.00 per annum in total.
Is there any post-investment condition?
Yes, the investee company must have business activities in Malaysia for at least two (2) years after the investment is made.
From Money Magazine, February 2005
There are sensible investing strategies for any age, as Peter Freeman reports
These are the early years when many people are relatively new to the workforce and are still renters. While some have formed a permanent relationship, many don’t have children. Home ownership and family are still in the future.
For this group the main financial focus is usually on saving a deposit for a home, an investment that has particular appeal due to its lifestyle benefits and capital gains tax-free status.
The first step for many will be to get their credit card debt under control and then eliminate it. Only then will they be in a position to start building wealth rather than simply paying for past consumption.
With interest rates having stabilised at relatively low levels and property prices still slipping, this age group stands to gain by saving for a deposit for a home so as to be able to buy when the market is weak.
Their main challenge will be to decide whether or not to try to supercharge their savings growth by diverting funds into a regular savings plan that invests in equity funds.
Callinan says building a deposit through investing in equity funds is a good strategy, but only if you can accept the risk that there could be a few years of flat returns.
“You also have to have a time horizon of at least five years, to give the investments time to perform,” she adds.
By their 30s, most people are in a permanent relationship, many have children and most have bought a home. The focus is usually on reducing their mortgage, possibly renovating and, where possible, attempting to upgrade to a better property.
Nash of Tynan Mackenzie says people in this situation should consider taking out income insurance, especially given the increased tendency of companies to respond to setbacks by downsizing.
At the very least they should be careful not to over-extend themselves financially, instead keeping money available for emergencies.
This may well involve delaying renovations. Alternatively, they should ensure their mortgage facility allows them to draw down more money quickly if they need funds in a hurry.
Of course, some people in their 30s will still be both mortgage and family free. This group may decide to try to catch up for lost time by aggressive investing, such as using geared share funds or by taking out a margin loan to finance a portfolio of direct share investments.
A small group will go so far as to use even more aggressive investments such as futures contracts, trading warrants and contracts for difference.
Nash stresses, however, that these should be approached with a great deal of care since, if handled badly, they can generate heavy losses.
Your financial comfort in your 40s largely depends on how much spending restraint you showed during the previous decade. If you were reasonably disciplined, there is a good chance you will be able to upgrade to a bigger home or, alternatively, carry out the renovations you deferred in order to finance investments.
However, the 40s is sometimes a financially difficult time for people who have children since they are now costing more than ever, especially if they are at private schools. This group needs to budget carefully. In contrast, those with relatively high incomes, or with few or no family responsibilities, should have the capacity to continue to use gearing to expand their investment portfolio.
The alternative will be to divert more money into superannuation. Unfortunately, while very tax-effective, money invested in super is locked up until you satisfy the various preservation rules.
These mean you can’t get your super before you are at least 55 and also retired. Super savings really only equate to financial freedom for people who are already in their early 50s.
This is a time for more sustained wealth creation due to higher salaries and fewer family costs (many children by now will be financially independent). Nash argues that the tax breaks offered by superannuation, plus the fact super savings will be more accessible, make this the preferred investment vehicle.
The other opportunity that often arises in your 50s is the chance to take more control over your life by establishing your own business, perhaps by getting a significant redundancy payment.
Even if the redundancy wasn’t voluntary, it can provide a valuable chance to build a new, financially viable life outside the 9 to 5 standard working day. But Nash warns it is particularly important to think very carefully before you use your family home as security for a business loan. “A debt-free home is usually crucial for any sort of financial freedom and should not be put at risk without a lot of thought,” he says.
The Sixties and Later
For many people in their 60s the main financial challenge is to invest their savings to generate a retirement income, and maximise their age pension. In most cases investments are built around some form of allocated or complying pension, in the process maximising tax and social security efficiency.
James of Investec says that, while there is a tendency for older investors to be extremely conservative, especially when the economic outlook is uncertain, higher life expectancy means a very defensive approach probably will result in your money running out.
This means investors should usually opt for an allocated pension that includes a reasonable exposure to both local and offshore shares, rather than a pension with a very high level of capital security.
While a conservative allocated pension carries less risk of suffering a sudden setback, it can also result in a low annual income and so increasing dependence on the aged pension.
Rules for us all
But whether you are in this, the fifth age of investing, or any of the other ages, all of us have to deal with the same economic and investment climate. We have to make the same range of crucial financial decisions, based on our assessment of the risks and opportunities that exist.
James says all investors need to guard against assuming the next five years will generate the same sort of returns as the last. “Expecting the second half of the decade to be just as good as the first half would be naive,” she says. “It may be, but there are plenty of reasons to think overall returns won’t be as strong.”
Among these facts are:
Returns over the previous five years or so from Australian shares have been so strong that, as has already happened with real estate, some correction at some stage is virtually inevitable.
There is no guarantee that one of the main drivers of local sharemarket confidence — the strong Chinese economy — won’t hit some adjustment problems, in the process dragging down local stocks.
The surge in oil prices could continue, squeezing consumers and slowing economic growth.
The $ could well remain at around current levels, rather than the much lower exchange rate that applied at the start of the decade, in the process maintaining the pressure on exporters.
As noted, the main implications of the shift to an era of lower investment returns is the way that making quick gains from the sharemarket or property is likely to be more difficult than in the previous five years.
One thing that won’t change, however, is the need for most people to adopt a suitable investment strategy and then resist the temptation to chop and change when a particular investment sector generates disappointing returns.
As already stressed, it is also crucial to avoid thinking you will be able to make big gains quickly. “Everyone wants to be rich tomorrow, but the risks aren’t worth it,” says Thornhill of Motivated Money. Impatience is our biggest barrier to serous and sustainable wealth creation.”
Stick with a Strategy
Callinan of Tandem stresses that, while a few investors make a lot of money by timing markets, they are the exception. She points out that even the professional managers who handle the investments for Australia’s huge superannuation funds often struggle to add value through timing.
Instead, they develop strict investment strategies and stick with them. “If you give yourself plenty of time and patiently stick with a well-designed investment strategy, you will almost certainly be a lot better off in 10 years time than those who don’t,” she says.
How do you analyze a small business opportunity? How do you differentiate good small business investment opportunities from bad ones? How do you assess a business opportunity to know if it’s worth pursuing? These three questions will be thrashed out in this article.
“There are no bad business and investment opportunities, but there are bad entrepreneurs and investors.” – Rich Dad
Savvy entrepreneurs know that not all business opportunity that appears viable on the outside is really viable. It takes a trained or experienced eye to tell a good business opportunity from a bad one. So today, I will be sharing a checklist that will help you analyze or assess a business opportunity. If you are ready to learn, then below are six checklists to analyzing or assessing a business investment opportunity.
1. Industry and Market
The industry and market of the proposed business plays a vital role in helping you decide if a business opportunity is worth pursuing or investing in. You can analyze the market or industrial situation by asking yourself or the promoter the following questions:
Does a market exist for the business idea?
What is the size of the market?
What is the growth rate of the industry?
These questions will help you gain a further insight into the nature of business opportunity you intend pursuing. It will also help you know if the promoting entrepreneur did his/her homework properly.
2. Length of the window of opportunity
Another point to consider when analyzing a business opportunity is its length of window. What I mean by length of window is this;
how long can the business opportunity or investment remain accessible?
Will the business investment remain open and accessible while you try to raise the required investment capital?
Based on my experience as an entrepreneur, I know that some good business opportunities come with a short access time frame, meaning they won’t be available for too long.
It is important to know the length of window of an investment because the investment might not still be open by the time you’ve rounded up the required capital for its exploitation. Examples of business opportunities with short window length are contract opportunities, where there are bidders and a stipulated time of contract execution.
3. Entrepreneur’s motivation and competence
The third thing to consider when assessing a business opportunity is the entrepreneurs’ or promoter’s motivation and competence. The competence factor is a critical criterion you must scrutinize carefully especially if you are investing in someone else business opportunity. The entrepreneur must be highly motivated, competent and experienced in game of entrepreneurship.
“An average person with average talents and average ambition can outstrip the most brilliant genius in our society; if that person has clear focused goals.” – Mary Kay Ash
Never invest in a startup where the promoting entrepreneur assigns himself huge salary. Never invest in a business venture where the entrepreneur’s primary objective or motivation is just to make money. Making money from a business idea or opportunity is something every entrepreneur loves but my point is; it shouldn’t be a primary motivation.
4. The Business Management team
“Business and investing are team sports.” – Rich Dad
The fourth thing to look out for when analyzing a business investment opportunity is the business management team. If you are the facilitator or originator of the business idea or opportunity, then you can decide or choose the business management team to bring on board. But if you are simply investing in someone else’s idea, then you have to assess the strength and weakness of the business management team.
“We need leaders, who add value to the people and the organization they lead; who work for the benefit of others and not just for their own personal gain. Leaders who inspire and motivate, not intimidate and manipulate; who live with people to know their problems in order to solve them and who follow a moral compass that points in the right directions regardless of the trends.” – Mary Kay Ash
To be on the safe side of any business or investment opportunity, you must think and analyze the business investment like a Venture Capitalist; otherwise called VCs. VCs prefer a strong team and an average product to a weak team and an excellent product. This is the major reason why most brilliant business ideas don’t get funded.
5. Capital, man power and technological requirements
Another issue you must analyze with respect to a business opportunity is the capital, man power and technological requirements. These three principals are very important especially when you want to assess the risk to reward ratio of a business or investment opportunity. They form the basis of business and investment risk analysis. If the requirement to pursue the business opportunity is extremely high with respect to the profit potential, then it’s not worth pursuing.
6. Economic Environment
The last on my checklist for analyzing business or investment opportunities is the economic environment where the business opportunity exists or is intended to be pursued. When assessing the economic environment, you must also take into consideration the fiscal or monetary policy of that environment or country, political situation and government’s policy.
“You are a product of your environment. So choose the environment that will best develop you toward your objective. Analyze your life in terms of its environment. Are the things around you helping you towards success? Or are they holding you back? – W. Clement Stone
This is important because some business and investment opportunities are favored by certain economic environments while others are not. For instance, some businesses thrive well in a socialist system of government, while others do well in environments where capitalism is the norm.
As a final note, these are my six checklists for analyzing or assessing a business investment opportunity. Though there are other factors to consider while carrying out a business opportunity analysis, these six checklists will give you a strong insight into any business or investment opportunity.
Written by Ajaero Tony Martins, Ajaero. Tony Martins is a serial entrepreneur and investor with several successful companies in his portfolio. He does business in one of the world’s toughest environment and has an audacious goal to become a billionaire in his life time.
Invest in what you know
Most angel investors have at some time owned and run their own business in a specific industry. It is important to invest in things you feel comfortable with. However, it is also important to have an open mind and review opportunities that have the same underlying principles, but may be in an area of business that you are unfamiliar with. If you are a good business manager, then you should be able to make a qualified decision based on the viability of any attractive business model.
Are you investing in the person or the company?
Remember, most small businesses grow by the driving force and inspiration of the founder/owner. Get to know the owner of the business. You must feel at ease with who they are and how they do business.
High risk equals high returns
Every business investment opportunity is unique and some offer greater rewards and risks than others. The nature of angel investing is by definition, high risk. Since you will likely be presented with several opportunities from this website, look for deals you feel comfortable with and remember, ROI can be much higher than with traditional investments.
Look for passion and vision
An entrepreneur without passion and vision is on the road to failure. Entrepreneurs need these attributes to be successful while you need to recognize it in order to seize an opportunity when you see it.
Take your time with due diligence
Always complete your own research and investigation on any investment proposal. Business plans can be packed full of numbers and data and appear very appealing but sometimes the data is unrealistic. It is ultimately your responsibility to ensure reasonability.
Always think Win/Win
If any party in a deal starts to get greedy, it is bound to fail. People want to have honest partners that have the companies best interest at heart. Whether it is the initial investment negotiation or the operation of the company, always try to find a deal that is great for both sides.
Make sure your deal is in writing
Always have your lawyer prepare or review the investment/shareholder agreement and clearly outline what your responsibilities are to the business. Nothing is worse than resentment building because of what the Entrepreneur “thought” you were to contribute to a deal.
It always sounds like the perfect way to get started in business. You simply buy somebody else’s business. This may or not be a good way to go. To help you decide whether it is or not, we will talk briefly about some of the important issues involved.
List of Pros and Cons
There are numerous good reasons for buying an existing business, and you can probably think of most of them:
1.Fewer headaches trying to organize and supply the business for an opening.
2.Established customer base.
3.Established supplier network.
4.Goodwill exists already.
5.All or most equipment will probably come with the business.
6.Former owner may be willing to give you free advice (or for a small fee) on how to run the business, especially if he gets his payments over time. (Think about that when negotiating the terms of purchase!)
7.No need to scout business locations, haggle with realtors or landlords over lease terms, etc.
8.Experienced employees may come with the deal.
9.Business may be profitable sooner than a start-up would be.
10.Banks are more willing to lend to a purchaser who can show financial records of a successful business.
11.Inventory needed for operation may come with the business, thus the purchasers can avoid the hassle of ordering everything they need (also, the inventory records may provide you with information about quantity and price that may be difficult to otherwise come by).
12.Former owner may be willing to sell the business in exchange for a promissory note rather than cash up front (be careful!)
And there are some pretty obvious downsides to buying an existing business, and you can probably think of many of them as well:
1.If the business has a bad reputation, it is now your business’s bad reputation.
2.Equipment may be outdated or useless.
3.Former owner may misrepresent the business and get a higher price than what the business is worth. (And try suing a guy who moves to Tahiti!)
4.Location may stink, requiring a move.
5.Contractual relationships of business may be unfavorable and difficult to escape.
6.Poor employees will come with the business unless you fire them.
7.The industry or products offered by the business may be dying or obselete.
This list gets you thinking about the issues involved, but the actual determination of whether to buy a business is much more arduous and requires considerable thought and investigation by the potential buyer.
Since even businesses in the same industry are often not equal, you need to know every possible thing about a business before buying it. Here are some factors you need to consider when deciding whether to buy a business or not and how much you should pay for it.
Visit the business. If the business is one that is generally open to the public, you do not have to be in contact with the owner of the business at this point. Using anonymity as an investigatory tool, check out the physical state of the business and gauge whether the owners have been taking care of the building and other property.
Check out the customers of the place while you are there, see if they are the kind of customers you want to deal with. If possible, in a nonchalant manner, talk to the owner about the business and see if (s)he is enthusiastic about the industry. Obviously, if (s)he talks about grinding poverty and coming financial ruin, this should be a big warning sign (but not necessarily the end of your interest since businesses can be turned around). Try to get a measure of the owner as a person. The more honest the owner, the easier it will be to determine whether the business should be bought since the information you receive is more likely to be accurate and complete.
If the public cannot visit the business site at whim or your initial contact with a public business left you with some interest in purchasing, call the owner and, assuming he is interested in selling to you, ask to visit the business for a look at the premises. Inform him that this is a very preliminary examination of the possibility of purchasing the business, not an offer to buy it. (Note: Some people like to retain their anonymity during this initial phase, and so use a third party to contact the business owner. But this author believes in face to face dealings. Do whatever you feel is best.)
Find out why owner may sell. An owner looking to unload a profitable business may say the exact same things as one selling an unprofitable one. “I’m selling it because I’m getting old.” “I’m selling it because I want to explore another opportunity.” “My health is failing.” Etc. Do not believe it. It may be true, but people almost never sell a really successful business to a stranger. The real reason could be, and probably is, a reason which would cause you to think twice about buying the business.
Typically, the reason people sell businesses is because they are losing money, or they are going to lose money. Reasons businesses lose money are innumerable. Standard ones tend to be a change in the industry (e.g., Walmart gobbling up the retail trade), technological change (try to find a buggy whip manufacturer these days), increased competition, crucial personnel have left the business, or the business is no longer able to obtain credit necessary to operations.
Find out everything about the business. Start by asking other businesspeople in the same industry what they think about the industry and about the particular business in question. They will give you some good information. If possible, make sure that you talk to competitors of the business.
Business owners are often surprisingly frank even with competitors. (But you may still want to listen to competitors with a dash of sodium.) Employees (past and present), suppliers, creditors, customers, banks, local government officials, and neighbors of the business are all useful sources of information capable of offering valuable information. You should also contact Dunn & Bradstreet to see if they have information about the business.
The most crucial component in gauging the business’s worth is determining its future profitability. Of course, future profits can never be measured precisely, but a rough estimate of what to expect is possible.
Past profits of the business are a starting point. To get a sense of past profits, obtain the tax records of the business for the last five to seven years. You should also look at the bank records and any available auditor’s reports. Compare the performance of the business against industry performance. If the business being sold is behind the rest of the industry, you need to find out why. The “why” is crucial since you will make money, break even or lose money depending on how well you can determine how to improve a business’s performance.
Also look closely at the business’ expenses and capital improvements at the same time. Low expenses and/or negligible capital investment may mean that the owner has not been putting money back into the business, a sign that the owner saw it as a bad investment. High expenses may indicate poor management or that the business is expensive to run.
Financial information like this tells you what happened in the past. The future profits, however, are what you are primarily interested in. You should use the past as a foundation for developing your projections about how well the business will do in the future. Judge how much value you could add to the business with your ideas. This is where you find out whether you are a good businessperson. A good businessperson is judicious and level-headed; their predictions will be a good estimate of the business’ future performance, not pipe dreams. Have an accountant, lawyer or other serious-minded professional look at your final projections. They may help you find flaws in your thinking if any exist.
The projection of future profitability will form a large part of not only your decision about buying the place, but it will also help you determine an acceptable price. Depending on the industry there are numerous other items that must be investigated. Some common items on business balance sheets and other assets of a business are listed here as a sort of checklist of things to consider when investigating a business. We have included another checklist of items to investigate, but this is more akin to what an attorney would use to perform an investigation of a business than what a buyer may want to consider.
Determining Price. There are many methods for determining the price of a business. No one method works best in all situations, but some industries have formulas they typically rely on to value businesses, so you may want to check into whether this is true for the industry you are considering.
Asset Appraisal: An appraiser comes in and places a value on the business’ assets, usually using book value rather than replacement value. Book value is the original value (typically the cost) of the asset minus the depreciation. Obselete, non-useful or nearly useless assets are not counted as being worth anything. Intangible items such as goodwill and are added to the total (but they should only be 10-20% of the total, and certainly not more than 50%) at the end. Liabilities are then subtracted from the total asset value. Then you have a reasonable approximation of the business’ worth.
Future Earning Capitalization: Future profits for an agreed upon period (e.g. four years from date of sale) are estimated by the parties. Then, using an estimate of the risks involved, you discount the future profits for the agreed-upon period. There is no reduction of the profits for taxes before the discounting for risk. Clearly the two variables are open to a lot of guesswork. The owner will try to get a high estimate of future profits and a low estimate of the risk. The buyer seeks the opposite. When determining the risk-factor discount, think about the alternative uses for your money and how risky they are. Judge that risk against the risk of losing money in the business. This should give you a rough estimate of the risk (assuming that your business judgement is good). To estimate future profits, see our earlier section.
Excess Earnings Method: The assets of the business are valued and the annual future profits are estimated. Then the number of years required to establish a similar business is estimated. Next a return on investment is calculated (ROI). (A return on investment is the money a person earns from their investment, for instance a share of stock purchased for $100 dollars and sold for $200 offers a 100% ($100) ROI.) The ROI you use can be the one you expect from the business or one from another investment you may pursue in lieu of the business.
Multiply the ROI by the value of the assets of the business. Add this product to the amount of money you expect to draw as salary (or skim from the top, heh, heh, heh.) This final sum will give you the expected pre-tax profits from the business. (PTP)
Next, subtract the PTP from the annual profit forecast, and then multiply that number times the number of years required to start a similar business. This product is the value of the goodwill.
Add the goodwill to the tangible asset value and this offers a rough estimate of the business’ value.
Note that you may get a negative numner when you subtract the PTP from the annual profit forecast. This means that the goodwill value is a negative number, and the goodwill value must then be deducted from the tangible value of the assets.
Each of these three methods is just a way of determining what a good businessperson would pay for the business. If you think you are smarter than other people and can run the business in a better way than anyone else, it may be worth slightly more to you.
You may already know where to find interesting startups, but what do you do once you’re actually ready to invest? It’s important to conduct your own due diligence on a startup before you write a check. You shouldn’t only rely on a great pitch, or assume others are doing the due diligence for you.
Let’s go over some items that you should investigate.
1. Understand the Industry
While you are looking for startups to invest in, make sure you invest in what you know. If you are a high tech expert and someone comes along with the next great idea in biotech, you might get caught up in the hype. The problem is that you may not have a deep knowledge of the market. Your decision could be swayed more by the sales pitch than your actual experience, making the investment more risky. Make sure you read up and understand the industry before you put any money down.
2. Get to Know the Team
When you are investing in a startup, you are really investing in the team. When the direction needs to be changed because something is not working, having a good team is the difference between success and failure. You want to make sure that the co-founders have experience in what they are trying to accomplish. Have they been successful with another company, or, if this is their first business venture, how well do they work together? Find out what their history is with each other. Knowing who is running the business is as important as what they are trying to run. A bad team can ruin a great business.
3. Assess the Monetization Strategy
Does the company already have a strategy on how it is going to make money? Twitter focused on growing its user base at first and waited to unveil how they were going to become profitable. You should at least have an idea of a few ways that the startup can charge for its service and it should be a reasonable price that you would pay as a user. You want to make sure that the founders have a strategy even if they are not executing on it yet.
4. Size Up the Competition
You need to understand who is competing with your startup for the same customers. Are the features something that the competition doesn’t currently offer? How quickly can the competition create something similar and what would happen if they did? The competition might also have the potential to acquire the startup in question, so you’ll want to investigate the competition’s acquisition history as well.
5. Review the Adviser List
If the startup has advisers, you should call them to understand how they are helping. Are they offering advice when needed? Helping to connect with people? Or are they just a name on a slide? You should also see how long the advisory period will last. It isn’t the end of the world if the startup doesn’t have a list of advisers, but if they are using their names as a selling point in the pitch, they should be active.
6. Check the Cap Table
You should look at the cap table to see how much stock has been issued and how many investors are on the list. You can see the valuation of the company and also if there is an option pool and how it will affect the shareholders.
7. Investigate the Financials
It is important to review the financials of a startup. Why? Because it will show you the money, of course. You can see how many assets they have, liabilities you may have overlooked and any potential revenue. You can also see how they are spending the money they currently have. What did they spend the seed money on? Was it development costs? Marketing? Or did they give the founders raises and waste the money on toys? Every startup should have financial history, so make sure you take a look and understand the story it tells.
8. Review the Plans for Future Funding
How does the startup plan to use the next round of capital? They should have a solid idea of what they plan to spend it on. Typically, startups will give a high-level breakdown with sections like growth, marketing and development. It is important to get more details. Look at the bigger expenses and understand those costs. Does development mean they are going to hire more technical people? If so, how many and at what cost? Is there really a marketing plan, or just a number they came up with because it sounded good?
9. Note the Burn Rate
It can take a startup thee months or more to raise capital, so you want to make sure you understand how long the money raised will last. Will they burn through the cash in six months, 12 months or longer? I like to make sure the round will last for at least 12 months — ideally 15 months or more. This allows the startup to focus more on building a great product rather than trying to ramp up for another round of financing.
10. Look Over the Legal Documents
You should look over items like articles of incorporation, by-laws, and board and shareholder meeting minutes. This will give you some insight into how the company was formed, who is on the board of directors, who has control, and what was discussed in the board meetings. Making sure a startup is upholding ethical and legal obligations ensures your investments will not be going toward financing shady deals.
This is by no means a complete list, and everyone should have their own set of criteria when evaluating an investment opportunity. However, these 10 points should give you a basic understanding of a startup’s health before you write a check. When you first start investing, it is a good idea to invest with other angels that have more experience or are knowledge experts in the startup’s industry. That way, they can help you out with the due diligence process and find things that you may have overlooked or should at least consider before making an investment.
by Bill Clarkmay. Bill Clark is the CEO of MicroAngel Capital Partners (www.microangelpartners.com), a venture firm that gives more investors access to alternative investments. He also gives investors the ability to invest in startups online through crowdfunding.
Investing in startups and being a great angel investor is certainly not an easy task – 9 out of 10 startups fail. For the past 100 years, angels were able to invest through their 1st and 2nd degree connections, or by being a member of an angel group, where the typical check size written varies from $15,000 to $250,000. Regardless of where or how angels connect with startups, there are 10 tips to consider prior to making any type of investment decision.
1. Evaluate the Team
The team is the most critical component in evaluating the startup’s likelihood of succeeding. Remember that execution accounts for at least 98% of the success of the startup. Every cofounder or key employee who owns stock in the company should have a skillset that provides a great amount of value to the long-term growth of the company.
Moreover, the founding team should have a clear vision of and clear goals as to where their project is heading. As an investor, you need to remember that the business plan will be constantly changing according to market needs, so the team should be capable of serving the markets demands.
2. Analyze Revenue Streams
After all the success and failure stories that the internet has produced over the last two decades, startups should be considered viable only in the event the company has been able to identify a clear way to make money. The first dollar really counts.
3. Consider the Burn Rate
For the investment that the startup is raising, you should try to figure out if that amount of money will allow the company to accomplish certain milestones, or if they will run out of money beforehand.
Founders’ salary at a seed stage has been a hotly debated subject. For instance, my co-founder didn’t receive any type of salary at RockThePost for the first three years. My salary has also been minimal and sporadic – actually I should say that I had one for a very short period of time, until I realized that I can hire someone else with that cash, so I did. Not getting a salary helps increase your chances of delivering on milestones and hiring quality talent instead.
I understand that there are founders out there who need to support families, so not having a paycheck every month might not be a viable solution for every founder and that is fine, too. Regardless, as Peter Thiel mentioned at TechCrunch50, the CEO should never have a salary of over $125K.
4. Competitive Advantage
The startup needs to have a clear competitive advantage over the other companies that are competing in the same space. Without this, the chances of success will be minimal. For example, Google was not the first search engine to launch, but their search results where much better and narrower than those of its competitors. In addition to the product itself, other competitive advantages, like key strategic partnerships, is important.
5. Market Size
Even if the team is incredible and the product is fantastic, the market still needs to be big enough to give you good returns and to provide a potential exit or liquidity event down the line.
6. Dig Into the Financials
In a startup company, it is very hard to get the financials right. Nobody really knows where the startup is going to be in five years, as startups can pivot overnight. However, financials will help you to understand the rigorousness and discipline that the founding team has around their business. The section where you want to pay special attention is the one that references the break-even point. That’s the time where the startup expects to start sustaining itself without the need of additional capital to survive. Additionally, the use of funds section in the financials will let you know how grounded the team is with regard to expenses that they anticipate.
7. Legal Structure
Typically, there are two ways in which you participate in a startup as an investor. One will be via convertible notes and the second is via the purchase of equity in a priced round.
A convertible note essentially is an instrument of debt that will be converted into equity at a later stage once, there is an institutional round that has been priced by a trustworthy VC or super angel. Without a doubt, this is the quickest way to close a round of financing for a startup, as there is really not a lot of terms to be negotiated. As an investor, you want to look for the interest that you will be receiving on a yearly basis and the discounted price on the next round. Additionally, sometimes there is a cap which sets the limit for future valuations when the debt that you purchased converts.
On the other hand, participating in a priced round can be a little bit more tricky, as there are different terms and voting rights involved that need to be negotiated between the investor and the startup. In a priced round, there is a need for a lead investor which will be the entity or individual accountable for establishing a valuation. For this you want the person or entity to be trustworthy and respected in the space so that you know you are getting the right value for your money.
8. Question Its Scalability
The less employees needed to output a meaningful volume, the better. This will decrease the burn rate and increase the chances of success. It is all about creating a “wheel” that, with money, turns faster. This type of models applies especially to digital companies.
9. Determine The Traction
Traction is the word every investor likes. It is an excellent indicator for showing how the market is responding to the product. Review the most important KPI’s to see the type of growth that the startup has been able to achieve over the course of the past few months in operation. It is definitely a plus if customers are so excited about the product that the word of mouth is one of the key components in driving such growth.
10. Understand The Industry
Understanding the industry or having some kind of expertise in the space will give you the advantage of not only understanding the opportunity better, but it will also give you the chance to mentor and guide the founding team in the right direction.
By Alejandro Cremades http://www.alleywatch.com/author/alejandro-cremades/