There are more and more angel investor checklists getting spread around lately as interest in angel investing becomes more and more mainstream. Maybe it is "alternative investing", "Crowdfunding", or "Sharktank"... whatever it is there is more angel investing excitement.
I've slowly been working on an investment checklist that I have been validating with new investments over the last couple of years. I'm now starting to take that checklist and tie it to long term metrics of those investments to track over time. This second part - the measurement and refinement of the checklist is where the magic happens. Most of the time angel investors give answers around "gut feel" or "experience"... in other words the reason they have specific items on their checklist is because they think these are the reasons companies perform well. Very few if any angel investors track data throughout the course of an investment to see if any of their checklist items made a difference. This is a major difference between VCs and angel investors... but isn't much different from professional stock market investors and mom and pop stock market investors.
What's missing from this check list that was published in the Daily Herald from two relatively new angel groups in the Chicago area (West Suburban Angels and Hawk Angels) - I have been meeting a lot more angel groups in the Chicago area lately. Lists like this aren't unique to angel groups in the Chicago area - I've seen very similar looking lists in Texas, California, Washington, etc...
Read through this list and ask yourself... Is this more of a wishlist than a checklist?
- A unique, market-ready technology, process or program in business services; broadly defined engineering technologies; life sciences or health care.
- Technology that solves unmet or poorly meet needs. The technology should be past initial launch.
- Significant competitive barriers that favor the company. A clear advantage that differentiates the company from others.
- A well-defined intellectual property portfolio or clearly established product innovation process.
- A management team that is financially invested in the venture and has expertise within the venture's marketplace.
- Scalable operations.
- Plans, records and documents that are maintained in a way that allows for a smooth due diligence process.
Now you've had a minute or two to think about them so I'll address them one by one...
- Does it have to be a unique or market-ready? Will that lead to a better outcome?
- If it is technology that solves unmet or poorly met needs - who can rightly determine if it is betamax or VHS?
- Ok - a well defined moat - I think this can be determined by average investors and measured over time - this topic for a checklist item.
- If it is an angel investment, should they have a "well-defined" IP portfolio?
- Here we go - management that has skin in the game - fairly broad, but one that can be checked and measured in relation to outcome.
- Uh... define scalable, will every operational component scale at the same rate? I don't think so!
- Organized - I can see how this can be easier as an angel and can be validated and tracked - but is there causation to outcome based on organization at such an early stage?
Do you disagree with the items on the list or my assessment?
Speaking of Sharktank... here are some thoughts about investing checklists from Sharktank's Barbara Corcoran. I won't pick them apart as I don't think these are truly supposed to apply to angels investing outside of Shark Tank....
- She looks for sales (margins over 40%)
- How those sales were achieved (did the entrepreneur get lucky or did they strategically and methodically earn revenue)
- Who owns the patent (better be the business owner and not a silent partner like a husband)