Posted on: 02 July, 2004
Author: William Cate
Angels - Are they Real?William CatePublished February 2000[http://home.earthlink.net/~beowulfinvestments/][http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]They're re... Angels - Are they Real?William CatePublished February 2000[http://home.earthlink.net/~beowulfinvestments/][http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]They're real, but few survive. High risk investing is dangerous toyour bank balance. The process toward extinction is that an angel risksmoney in one venture. It fails. Then, he joins a group of angels and risksmoney in another venture. It fails. At this point, the angel usually handsin his or her wings.To be an angel, you must have considerable discretionary income.This is why most angels are attorneys, accountants, medical doctors orsuccessful small business people. Attorneys and accountants often formangel groups from their client base. Their goal is to take the ride on theroller coaster without paying for the ticket. Their clients invest in theproject and they get a piece of the action. Since the action is usuallybad, all they get from the effort is a reduced client base.Angels want to invest within fifty miles of their location. Thisallows them to visit the office or plant of the investment on a regularbasis. As the company starts to fail, the proximity card encourages theangel to try to take over the business investment. This mistake is oftenmade by successful small business people.I'd defer to a study on the odds of attracting an angel to yourcompany. However, my experience suggests that an angel will invest in aboutone company out of every three hundred that send the angel their businessplan. My experience is based upon working with San Francisco Bay AreaVenture Capital Clubs over a decade ago. Given the greater investmentinterest today, your odds may be better than 1-in-300.Eighty-five percent of small businesses fail. Among the 15% thatsucceed are franchises and professional offices. My guess is that an angelhas about one chance in ten of making money on a risk capital investment.The angels think they can beat the odds. They're wrong.Most attorneys, accountants and medical doctors achieve theirsocial position and income by believing what they read. As a student, ifyou question the data in a textbook, you are unlikely to pass the finalexam. This pattern of read and believe gets the student from first grade tomedical school or law school. Believing what you read in a business plan isoften a mistake. Professionals tend to believe the written word. Doing soas the basis of a risk capital investment is fatal. As more than oneprofessional has told me when they turned in their wings, "I guess I'll haveto raise my fees to offset my business loss." I've often wondered ifbarring professionals as angels wouldn't lower legal and medical costs.Small business owners believe they are "smarter than the averagebear." It's their ego that often clouds their judgment. If you don'tbelieve that you've made a mistake, you'll dump more money into a blackhole investment. It's this group that are most likely to turn in theirwings as they file for Chapter 11. "There's a time to hold them and a timeto fold them." Successful small business people don't believe in folding.There are always angels coming into the Market. We live in boomtimes. The population of angels is growing. If you can catch a nearbyangel, do it. It's best to catch them before they see the financial firethat awaits most of them.As with buying lottery tickets, there are a few successful angels.I'd like to see a study of how long they last, if they beat the investmentodds.To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/] Article Tags: Small Business Source: Free Articles from ArticlesFactory.com