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Magic 8-ball-of-angel-investing

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Thoughts on building a "Magic 8-Ball" for angel, or early stage, investing...

Thoughts on building a "Magic 8-Ball" for angel, or early stage, investing...

Published in: Economy & Finance

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  • 1. “Magic 8-Ball” of Angel Investing By Tom Tierney 26 July 2010 Entrepreneurs may sometimes think angel investors use a “Magic 8-Ball”1 to come to investment decisions based on which companies are, or are not, ultimately subjects of investment. Angel investors may sometimes think they might as well use a “Magic 8-Ball” to make investment decisions based on the high percentage of failures, versus successes, in early stage investing. Perspective is everything! In fact, after 10 years of angel investing, I can offer a tongue-in-cheek disclaimer for those entrepreneurs approaching angel investors (and probably VCs as well): "CAUTION: Investors may, or may not invest for reasons we have yet to be able to ascertain from years of empirical data. Don't let a lack of interest, or extreme interest, have any bearing in your perspective with the chances of failure or success of your enterprise. Consider this an investing version of the "Magic 8-Ball", where each shake may yield: "INVEST!", "PASS!" or "TRY AGAIN!”. Good luck!” Let’s run with this: what would comprise an angel investor, or early stage investor’s, “Magic 8-Ball” to be used in the startup investment decision making process? Like a regular “Magic 8-Ball” we would have red (negative), yellow (cautious) and green (affirmative) choices for the question: “Should I invest in this company?” Some possible choices for building the “Magic 8-Ball” of angel investing: -New market, cannot predict. -Crowded market, outlook hazy. -Great product, inexperienced - Great team, market and -Valuation too high, try again team, caution going forward. product, signs point to yes! later. - Intellectual property hazy, - Successful serial -Hockey stick revenue try again later. entrepreneur(s), it is almost projections, don't count on it. - No barriers to competition, certain! -Investor indifference, try again outlook not so good. - Inexplicable investor later. -Haven't we seen 10 of these? interest, outlook good! Our reply is no. -For vague reasons, our reply is no. Yes, sometimes decisions are contradictory, sometimes arbitrary, blame the “Magic 8-Ball”! Tom Tierney lives in Encinitas, CA and is a member of Tech Coast Angels (www.techcoastangels.com). Also see http://en.wikipedia.org/wiki/Tech_coast_angels for more background information on the TCA. 1 http://en.wikipedia.org/wiki/Magic_8-Ball