When It Comes Right Down To It
Brian Perry
16-Jul-06
Having come from both sides of the entrepreneur/angel investor equation, I can’t help but to look at both of these sides in each angel investment proposal I review.
As an entrepreneur, I have traveled down that familiar road many times. Sometimes bursting with enthusiasm after a light bulb moment and other times on the verge of a breakdown. Throughout those experiences I have come to appreciate either the creative talents I have or the effort I put into each business. Because I am an entrepreneur, I truly understand the concept and “perceived” value of sweat equity. As an angel, I commonly see entrepreneurs over inflate what they believe to be “reasonable” or “fair” sweat equity.
With any early stage investment, does it in fact all come down to objective numbers and proven valuation models? Can each business investment be assessed with the same logic and approach? Absolutely not.
So, who is right? The entrepreneur with their subjective, loose and unquantifiable value on sweat equity or the angel’s objective bare bones and conservative value? Here lies the problem, or should I say, challenge of the negotiation.
Not only do I now wear the hat of an angel investor, I also wear the hat of a human being and businessperson. When facts, statistics and truly objective mechanisms fail me, I am left with instinct, experience and certain other tools not found at business schools, in boardrooms or on bookshelves.
I don’t think I am the first, and certainly not the last, angel to say that I have totally thrown logic out the window on the odd occasion. Can I walk into a business as an investor and fix business problems? Yes. Also as an investor, can I invest and walk into a business that has explosive growth, few management, operational or cash flow problems but an owner with a very different set of values than I have? No. That type of investment could very well be a great short-term return for me but long term, not likely. Even if it was, I am governed by some things that simply want me to say “no” in spite of that hefty shortterm gain.
I guess what I am saying is that not all angel investment opportunities can be assessed based on the obvious business case. As an investor yourself, you know what makes your short list and what your basic investment criteria is. However, for the hard to decide ones and when it comes right down to it, rely on your instincts and your insight into the people involved before you get into bed with any investment or new partner.
