Top 5 Reasons Private Equity Investing will be the Next HOT Investment Trend

I’m an economist by training and a capitalist by living.   I have been analyzing and assessing market trends for decades and really became a student of it when I discovered my foray into venture capital and early stage investment markets in 2001 was at the downhill slide, not the uptick for that investment trend.  But I rode that wave and have been actively (and successfully) building an angel investor community in Atlanta and helping early stage company get the capital and resources they need to grow.  

This crazy economic roller coaster we are on now only reinforces what I learned in 2002 when I analyzed why the angel investment and venture capital market got so crazy to create the dot.com explosion and ultimate implosion.    Money seeks a way to multiply itself.   Think about every big “trend” where great wealth was created by the market makers and the early adopters, only to have it implode and cost the late entries and followers a lot of money.   S&L bail out, Junk Bonds, dot.com, to the current hedge fund frenzy and the mortgage collapse.    So why do I think that Private Equity Investing will be the Next Hot Thing?  I have 5 reasons:

1.  Sophisticated investors that haven’t yet participated in angel investing have realized that ALL investment classes are risky.  They think:  “With the collapse of the stock market and the real estate market, might as well invest in something I know is risky but I have potential to get 4-8X more ROI!”

2.  Market Makers are going to be looking for new places to put money and the OTC BB market with the new controls recently implemented will be the next favored market place because it easier to directly reach investors to create the market for that stock.

3.  Early stage companies that have received private equity investment from angels will be looking for new ways to exit and the OTC BB public offering is not as expensive as the big exchanges, but still gives access to fund managers for large PIPE investment for growth capital and acquisition isn’t as readily available as it was the past 3-4 years.

4.  Angel Investors already know the early stage company’s value is at the bottom and will only go up or go out of business, but they can more effectively impact the company’s value going up than they can with a public company.

5.  With the advent of strong investor groups forming and investor portals designed specifically for investors to be able to identify, investigate and invest in early stage companies the way eTrade provides that access to public companies, individual investors can have a community to collaborate with on early stage companies.   Visit www.NationalNetworkofAngelInvestors.com (NNOAI) to help build an investor community the way you dream it should be. You can get a free report on the 5 Billionaire Secrets and excerpts from the popular how to book for angels: “Inside Secrets to Angel Investing” when you optin on the NNOAI site.

So watch this space because angel investment will return as one of the best asset classes for sophisticated investors to increase their wealth while the economy enjoys a rebound by early stage companies getting capital to grow and create jobs.

CrowdFinance – the brave new frontier for alternative investment products

Heard the words – crowd finance , crowd funded?  It is truly a new frontier, fraught with risks and uncertain rewards.   The good news is that investors have a great opportunity to make a direct impact on bringing innovation to the market and creating jobs —while creating great returns on their investment.  That is the plan, the hope.  With great freedom to invest directly into these early stage exciting companies, comes great responsibility.

We are in a unique place in American history. For the first time, investors and entrepreneurs are experiencing “Disintermediation”the attempt to do away with the intermediary entities between two primary market forces to eliminate the middle man.

The Compassionate Capitalist Radio show provides topics relevant to entrepreneurs and investors seeking to create generational wealth through the successful growth of innovative companies. Listen to this segment to learn about the unique opportunities and risks available to investors to gain access to this dynamic asset class – private equity and to entrepreneurs to raise capital directly from qualified investors in the public marketplace through Reg D 506c and Reg A+. We are at the forefront of what many call the effective dismantling of financial apartheid in America. Listen so you can learn how to catch this wave of opportunity.

LISTEN: Blog Talk Radio.com With Karen Rands Compassionate Capitalist showed aired: 2015/09/01 Topic Crowd Finance–the Catalyst for Economic Democracy

By understanding how the new crowd based finance options fit into a capitalization strategy, an investor can better understand the risk vs reward, startup vs expansion, and the potential impact on share value.   Further, an entrepreneur can better understand the role each of these new pathways to potential capital play when creating the strategy for an efficient go to market and lean operation for growth and expansion and maximizing share holder value.

Also available are the videos from the FinFair 2015 conference:  https://www.youtube.com/user/daraalbrightevents/videos

Also available is webinar on mitigating fraud in Crowd Funding and other webinars:  https://www.brighttalk.com/webcast/9407/167837

Special Guest:

Dara Albright is an industry leader and expert in crowd finance movement.  She has spearheaded initiatives to educate, inform, and create a community of collaborators with her renowned conferences and webinars.  Dara is admired and respected by the some of the most prominent figures in the financial industry and legislature as she provides fertile environments for them to come together to understand the unique challenges and tangible concerns of the prime stake holders within this new financial landscape- the investors and the entrepreneurs.
She joins Karen Rands’ Compassionate Capital radio show to share insights into the current state of the crowd finance industry and the terrific opportunity that the new regulations provide for investors and entrepreneurs alike for Economic Democracy. Dara’s FinFair & LendIt conferences are the ‘must attend’ events for industry insiders.

To learn more about Dara Albright and research this topic further, please visit http://daraalbright.com.
Investors seeking more knowledge about how to invest in early stage companies, please visit Karen Rands’ website, KugarandHoldings.com

How Angel Investors can Reduce their Taxes with Tax Credits

Slowly but surely, our Federal and State Governments are recognizing that most new job creation comes from small to medium size companies.  As entrepreneurs launch their businesses, get funding to bring innovation to the market and grow into bigger companies, jobs are created.   Furthermore, they have realized that the primary source of capital to start and grow those businesses are private investors…not the local bank.  Therefore, to provide an incentive to the very wealthy to “give back” to their local economy by investing in local businesses, they provide a tax incentive. By putting their wealth back to work in providing capital to early stage companies, the investor receives tangible benefit in the form of a tax credit against earned income, but they also receive intangible benefits from knowing they have contributed to the creation of jobs and the delivery of innovative goods and services to the market place….ie Compassionate Capitalism.

The Compassionate Capitalist Broadcast covering this topic can be replayed by clicking this link:

http://www.blogtalkradio.com/karen-rands/2014/04/01/compassionate-capitalist-saving-taxes-as-an-angel-investor

This podcast reviewed the various options that investors have to reduce their tax basis by investing in companies that have not yet gone public.   Investing in companies with tax credits associated with them offers two wins…reduced paid in taxes during the term investment tax credit, and return on investment at the point of sale of the equity to a public market or another company.  Twenty-one (21) states now offer tax credits for angel investment.  The Angel Capital Association maintains a list with links for each state to learn what is available in that state.  http://www.angelcapitalassociation.org/public-policy/existing-state-policy/ .

The movie and gaming industry is also a big contributor to local economies.   States have implemented multiple programs to attract companies to produce movies and develop gaming software.  Forty-Four (44) states offer “production incentives” and twenty-eight (28) states offer tax credit incentives to investors in those endeavors.  http://en.wikipedia.org/wiki/Movie_production_incentives_in_the_United_States

For the most part, tax credits are applied against earned income.   If the investor doesn’t earn a “w2” income, the can still gain benefit by selling the credits.  A number of financial firms and legal firms exist to advise investors with tax credits and broker those credits for sale.   This is just one firm that offers good information about selling of tax credits. http://www.taxcreditsllc.com/

It is important to understand the options that are available to you to reduce your tax basis while diversifying your investment portfolio.   As you seek to increase your wealth, it is important to also protect that growth with a reduction in taxes whenever possible.  In most cases the states require paperwork to be filled out in advance by the company to eligible for tax credits.   Some industries may be excluded.   Therefore it is important to become familiar with the programs available in your state and as you look for companies to invest in, take the potential for tax credits into consideration when calculating the Internal Rate of Return (IRR).

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Are you an investor that is tired of the volatility and unpredictability of the stock market? Are you frustrated that you have little influence to affect the management or operation of that public company? Have you realized that the public stock market is actually pretty risky and the overall return on investment isn’t that great?  Then learning how to invest in private companies, purchasing shares in a company before it goes public, while the valuation is still low, could be the wealth creation strategy for you. Join the National Network of Angel Investors and sign up for the educational newsletter and free excerpts from the “Inside Secrets to Angel Investing”. http://NationalNetworkofAngelInvestors.com

What Keeps 750,000 Accredited Investors from becoming Angel Investors?

What Keeps 750,000 Accredited Investors from becoming Angel Investors?

Karen Rands, covered this topic on her Compassionate Capitalist Radio Show recently.

In a nut shell….lack of knowledge — The men and women who are earning over $350,000 a year in income, as tracked by Census and the IRS, are likely executives in a large company or run small to medium size businesses.  They didn’t make their money in a venture backed high tech company and likely aren’t part of a company that raised capital to get started, or if they are, they weren’t part of the team that founded that company.   They aren’t being encouraged to invest in private companies by their financial planner.  For the most part they aren’t even aware of “angel investing” as a wealth creation strategy and may not know that stock of private companies are available to purchase before they go public.   They are the ones that try to “get in on” the first issue of public stock for the hot company they are hearing about.  They are sophisticated investors so like the idea of having their money work for them.  That is why they often invest in real estate.  Yet if they knew they could apply the same practice they use to decide if a property is a good investment or a public stock is a good buy to the decision to purchase equity in a private company, and have the opportunity to own a % of multiple entrepreneurial endeavors with strong potential, they would choose to include that as part of their wealth accumulation strategy.

According to the US Census, there are an estimated 1,150,000 households that earn over $350,000 a year. Furthermore, there is an estimated 250,000 active angel investors involved in structured groups and actively considering investment in early stage companies as a means to create wealth in their diversified portfolio. And if we assume there are at least 150,000 of the wealthiest that have too much money to be angel investors…they don’t invest directly into companies, they invest in the funds that fund the companies. That leaves an opportunity for the remaining 750,000 to become angel investors.

Listen to the Podcast for the full report.

Whenever there is a shift in the market, there are key factors that trigger it and contribute to a successful shift.  The 3 A’s of Market Movement:

  1. Awareness
  2. Adoption
  3. Access

Awareness of the potential to invest in a high growth company before it goes public or grows in value to attract an acquirer is growing as “crowd funding” news continues to spread around the internet and in the general press.  With the advent of the Jobs Act of 2012, “crowd funding” became a common term bantered around, often within the wrong context, but none the less a phenomena that people were talking about.  Wealthy men and women who consider themselves “sophisticated investors” with an  above average Financial IQ are curious about this as a new “hot” investment platform.  Yet there exists a cloud of confusion around “crowd funding” because although passed by Congress and signed into law by the President, the sale of securities is regulated by the Securities Exchange Commission (SEC).   As of this writing, the SEC still has not issued their rules for the Title III part of the Jobs Act that specifically addresses  how companies will do equity crowd funding at a national federal level.   Currently 4 states offer specific legal guidance and approval for companies incorporated in their state to raise money from investors in their state via crowdfunding methods- Kansas, Georgia, Michigan, and Wisconsin, with Washington, Alabama and South Carolina considering legilsation.   Companies are permitted through Title II to raise capital from Accredited Investors under the Reg D 506c and Reg A, under specific conditions, and market to them via the same means that companies use in rewards based crowd funding.  Learn more about history and status of crowdfunding.

As this community of sophisticated investors who would easily qualify as “accredited investors” via the certification process by providing copies of their W2 or past tax filings become aware of the opportunity to invest in private companies they must learn to adopt the mentality of an angel investor.  Angel investors think differently than regular investors who are simply wealthy.  Angel investors have to have vision and imagination.   Entrepreneurs seeking angel investment must be able to cast a vision that the potential angel investor believes can be a reality.  They must imagine the potential results that the management team will be able to produce with the product and strategy they are offering that is at the core of their investment opportunity.  If the entrepreneur is successful in conveying that story and it is better than the one the investor just heard or will hear the next day, then they will be the lucky one to get that angel investor’s money.   Traditional investors look at the history of a public stock to anticipate a trend, the market comps on a real estate to predict a trend… all with the intention of buying low to sell high.  None of that really exists with private companies.   That is where an investor has to “think outside of the box” and think about the company beyond just what has been done so far and grow to understand that buy adding private equity investment to their portfolio they have an opportunity to produce a greater return…if they don’t lose the entire investment.   Investment in private companies is by its nature very risky.   It is an illiquid investment and sometimes the return doesn’t come for many years down the road.   So as sophisticated investors adopt private equity investment in early stage companies as a strategy to grow their portfolio, they must also be extremely patient.  They also must take the time to learn about the legal requirements to make this type of investment.

With knowledge that they can own pieces of many companies, and the desire to become an angel investor, all that is left is access to the deals and the due diligence.  Traditional angel investors join groups that help with the screening and due diligence process. Committees are formed to screen deals so only the best get a chance to pitch to the group at large.   Committees are formed to conduct due diligence on the company and report back to the group of investors so they can decide to participate in a pool of funding for that company.   They may have an obligation participate on a committee periodically and to attend the monthly pitch meetings and follow up meetings.  They can spend this time because they typically don’t have a day job.  They are wealthy because they had an exit from a company or an investment that provided them with disposable income to invest.   They “self certify” in traditional angel investments so as to avoid full disclosure on their actual net worth and sources of income.  The 750,000 accredited investors we are talking about here, that are void in the marketplace now, are too busy to participate in those groups and participate on a committee that requires time, even if the group is actually located in the city they live in.  They have access to public stocks through stock portals to do the research and trades whenever they want, 24/7. They have real estate agents find them investment properties.   Their financial planner won’t find them private company investment opportunities because of the rules they have to adhere according to FINRA.  So gaining access to a variety of opportunities to consider that also have full disclosure and due diligence information available is critical as the final trigger in the market shift.

Kugarand Capital Holdings, LLC is launching a secure portal to provide the opportunity and the due diligence necessary for this type of sophisticated accredited investor.   The 22 year old NBAI is being transformed into The National Network of Angel Investors comprised of small regional groups forming virtually around the country based on regional or special interests.  Education is provided on an ongoing basis through articles, white papers, podcasts and videos.  Sophisticated Accredited Investors seeking to understand how to become an Angel Investor…how to adopt the mentality, but also learn the ropes of being an angel investor… applying the knowledge of stock market and real estate investment to private equity investments will purchase the book “Inside Secrets to Angel Investing” as their road map.

Are you an investor that is tired of the volatility and unpredictability of the stock market? Are you frustrated that you have little influence to affect the management or operation of that public company? Have you realized that the public stock market is actually pretty risky and the overall return on investment isn’t that great? Then the time is now to participate in this market shift….  Then learning how to invest in private companies, purchasing shares in a company before it goes public, while the valuation is still low, could be the wealth creation strategy for you.   Tune in to learn how to join the world of compassionate capitalism

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The National Network of Angel Investors

6 Reasons Why Private Equity Investment is the Next “HOT” Asset Class for Sophisticated Investors

During the last few years, we have survived one of the worse economic downturns. The new “normal” by many standards is a 10 year set back. Money is like water, it finds a way to flow and come together to multiply. Leading up to the economic crash of 2000, we saw an increase in angel investing triggered by the increase in venture capital investment. As more companies were going public, we saw an increase in day trading as a means to quick wealth. These were enabled because big money from retirement funds, private equity funds and family funds invested in the venture capital funds and took large positions on companies in their initial public offerings.

When it all imploded and the bubble burst, it took a couple of years but angel investing and venture capital investing came back. The intrinsic value of investing in private companies in their early stage was not in doubt, it was the process – how companies were identified and vetted that was in question. Investor groups became more formalized, with better pre-screening, due diligence committees, and terms negotiation. Similar economic conditions exist now. The difference in then and now is that most of the people participating in the growth of angel groups in the mid 2000s were successful high-tech entrepreneurs investing in similar companies to influence a repeat of their prior success without the full cost of time and capital in starting and growing a company.

As an economist, who has worked with angel investors for over a decade, I have identified 6 reasons why private equity investment will be the next “hot” asset class for high net worth men and women that want to create generational wealth.

  1. Increase in Risk Tolerance: In the last decade, fortunes have been lost in real estate and the stock market. As investors become more sophisticated and become aware of the ability to invest in private companies because of the buzz surrounding “crowd funding”, they are willing to take the risk because the potential for return is greater than with other asset classes.
  2. Quasi Public Offering: Market Makers are going to be looking for new places to put money and the new rules on general solicitation open up opportunities, awareness, and access to private companies. Private companies raising capital under a 506c will be the next favored market place because it’s easier to directly reach investors to create the market for that stock.
  3. Return on Investment: Early stage companies that have received private equity investment from angels have found a ripe market to sell their companies to larger corporations even before they need their B & C round of capital. Early investors are not as diluted and the timing for exit is shorter than for companies trying to grow to the point of being able to go public.
  4. Increased Value: Angel Investors already know the early stage company’s value is at the bottom and will either go up or go out of business, but the investors can impact the company’s value success through their involvement than they can with a public company.
  5. Safety in Numbers: With the advent of strong collaborative investor groups and investor portals designed specifically for investors to be able to identify, investigate and invest in early stage companies the way eTrade provides that access to public companies, individual investors have an opportunity to collaborate with on early stage companies.
  6. Efficient Use of Capital: The cost to launch a company is lowest so the investment dollar goes further. Young entrepreneurs can join incubators that are associated with either universities or as part of an economic development initiative in their area.

Watch this space — angel investment will become one of the best asset classes for sophisticated investors to increase their wealth as the economy continues to rebound and early stage companies continue to have ample access capital to grow profitably and create jobs.

You can get a free report on the 5 Billionaire Secrets and excerpts from the popular “How To” book for investors seeking to learn the ins and outs of investing in the equity of private companies: Inside Secrets to Angel Investing–  Simply visit http://.angelinvesting101.com and optin on that page.
Visit http://NationalNetworkofAngelInvestors.com  to join a community of Compassionate Capitalists and help build a network of sophisticated investor that are like minded in their desire to help entrepreneurs succeed, and increase their wealth by doing so.

Why is Angel Investing such a Mystery to Wealthy People?

Interestingly enough, if you were to ask the average millionaire that you encountered on the street (not that any millionaires are actually average) their thoughts on entrepreneurship, capitalism, and creating wealth; you would likely get comments such as the following:

“Entrepreneurs are the backbone of our society. They create jobs and bring innovation to the market.”

“It is only in creating wealth that anything gets done or paid for.”

“I’d rather give my money to an entrepreneur with half a brain and the gumption to go out and do something with it, than some government empty suit that is just going to give it away. ”

“The people who solve problems make the biggest bucks.”

“Buy low and sell high!”

“The free market – capitalism – gives you personal freedom – to choose your future destiny.”

“I seek to invest my money where I can get a return on investment…the greatest reward relative to the risk.”

So with thoughts and feelings like this, what keeps millionaires with the capital on hand to make alternative investments and invest in early stage private equity opportunities?  It is estimated that 10% of the American population has the means to qualify as an accredited investor, that translates to millions of potential investors, yet only a few hundred thousand participate in angel investor type deals.

Our investigative team has determined that the very regulations intended to keep fraud out of the process and protect high net worth individuals is actually creating a situation where misinformation abounds.   Further, greed and fear actually limit the free market access to information about investment opportunities into private companies these potential investors should have to be able to become “angel investors”.

The Securities and Exchange Commission (SEC) regulates the sale of securities.   What this means is that for entrepreneurs to be compliant in their sales of equity in their company, they must adhere to rules regarding selling those securities as a non-public company.

1. General rule of thumb is that they sell to only accredited investors, with a few exceptions.

2. They must provide documents that clearly state the risk, typically in a Private Placement Memorandum

3. They cannot do a public solicitation through an online posting, email blast, advertisement or anything that will offer the security to the public and therefore they must have pre-knowledge of the investor, or if they work through a licensed broker the broker can sell their security on their behalf.

4.  If they are to pay a commission for the sale of that security, they can only do that with a licensed broker, with few exceptions.

This leads into the Broker side of the equation which is regulated by FINRA.  FINRA, the Financial Industry Regulatory Authority, is the largest independent securities regulator in the US whose chief role is to protect investors by maintaining the fairness of the US capital market.  They regulate the brokers that are authorized to sell and take a commission on private placement opportunities.  Typically brokers/dealers charge large upfront fees and large back-end fees for the sale, and assuming the liability, of selling that security.  They have a due diligence fee, retainer, commission and stock options. To justify those fees, they typically want to work with companies that are raising $5M or more and have revenues to manage to the upfront fee, or have cash on hand from their friends and family round of financing.

Broker/Dealers (BD) often have affiliate brokers, financial planners etc, that hang their license with them.   The brokers, according to the FINRA guidelines, create fear with these affiliate brokers if they are caught “Selling Away”.   So if an affiliate broker sells anything to their clients, the people whose money they are managing, that is not offered and approved by the managing BD, then it is considered selling away from the brokerage.

What Does Selling Away Mean?
When a broker solicits you to purchase securities not held or offered by the brokerage firm. As a general rule, such activities are a violation of securities regulations.
Investopedia Says
Investopedia explains Selling Away
Typically, when a broker is “selling away,” the investments are in the form of private placements or other non-public investments.

On the surface this is all good because the investor only gets products, securities, investment vehicles that have been fully vetted by the brokerage house.   They sleep well at night believing that they have placed their money in solid investment vehicles, whether private or public offerings, they really don’t focus on the difference.

As with any private equity transaction, this does not guarantee that they will not lose money in that investment.  We’ve seen that all over the place even in reputable firms like Stanford or in public stocks like Enron.

But in reality, how this plays out is that the Broker will only promote private offerings that they are being paid to promote.   And investors that want to participate in angel investing, want to “own a piece of a company” don’t get the benefit of having their financial counsel to help them  in evaluating the deal, they don’t get quality deal flow from other sources, and they don’t gain insight into how to make wise investment decisions in that area and manage to the tax implications on the return on investment.

Not all high net worth individuals think of investing in private companies as “angel investing”.  If they are readers of Robert Kiyosaki’s books (Rich Dad, Poor Dad or Cashflow Quadrant) then they likely are working on their financial IQ and working toward being Business Owners and Investors so that their money works for them rather than working for their money.   Angel investing in effect is the entire scope of the right side quadrant….business ownership through investing in private businesses.  Yes you have the greatest likelihood to lose all the money invested in an early stage private company, but you also have the potential for greatest return on investment.   Private equity investing at the early stage produces greater returns than real estate or stocks or any other asset class.

Angel Investing has the potential to create more wealth than any other asset class…at multiple levels.  It can create wealth for the investor that directly invests.   It creates wealth for the entrepreneur that is bringing the product to market and building a successful company.  It creates wealth for the newly hired employees in their earned income.   It creates wealth for all the businesses along the supply chain that service the company, build the products, and so on.

On the other hand, most real estate investment only creates wealth for the seller and those that assisted in the sale and the investor who gets a return from rental income or the upside when it is sold the next time.  Public stock investment doesn’t create wealth for anyone except for the person who is able to sell the stock for more than they paid for it.  There is a commission paid to the broker for handling the transaction.  The money used to buy public stocks doesn’t go into the company’s coffers to invest in R&D or hire new people, it goes to the seller of the stock.

So for those millionaires that “get it”….there isn’t a lot of guidance on how to determine if an early stage private equity opportunity is a good investment nor how to decipher the terms of the investment and if the return on investment will come in the best format for the tax implications and so on for that investor’s overall investment strategy.   The tax implications from a convertible note that has accumulated interest may be different from an investment that shared in the revenue (and losses) of a company; the investment made as a straight purchase of equity that is held for 18 months vs one that is held for 5 years.  And what would the impact be if you purchased the equity through your self directed 401K or as an investment made through a ROTH IRA.

Entrepreneurs that think they are doing the right thing, creating a PPM that even allows for a broker commission and only selling securities to accredited investment has NO idea that a whole source of potential investors are not available to them, actually blocked from them getting access to them.   It is crazy to think they would go to one broker to get access to their investors, pay the fees, then go to another one, pay their fees, and so on.   They typically will work with one broker for a while and then forge out on their own trying to find the individual investors.   If they go the broker route, they typically can’t go back and work with angel groups because the structure of the stock offering is set in stone.   The greed of the brokers won’t let the entrepreneur just pay the broker a commission or to have the affiliated broker take it to one or two of their high net worth clients that have expressed an interest private placement opportunities.   And because of the fear that the affiliate broker has in losing their license if they are accused of “selling away”, they won’t even tell the client about the investment opportunity and NOT take a commission.   When the licensed financial adviser knows the client wants to make real estate investments or buy a franchise, they will refer them to a source for those deals and help them to understand the implications on their financial diversification and asset allocation, and any tax and estate implications.  They don’t collect a commission, they don’t think of this as selling away, they think of it as providing full service to their client based on the client’s interest in different investment options.

So what is the solution?

For investors, that want to be involved in angel investing and they don’t have the benefit counsel from their investment adviser they should do the following:

  1. Buy the series Learn to Be an Angel Investor…it is concise look at the history, process and structure for angel investing taken from 5 years of working with successful investors and their secrets to success and countless industry reference materials. 5 books, or one compiled “Secrets….”
  2. As part of the Compassionate Capitalist Radio Show where Karen Rands revealed the insights gained recently on why so many wealthy people don’t know about or participate in angel investing. Podcast file is include in this posting….

  3. Form a team of advisers that will help you and protect you…this includes a lawyer accountant and financial planner/wealth manager.  They should all have made angel investments in the past or at least counseled others in that arena, either entrepreneurs or investors in early stage capital.
  4. Attend a seminar that can teach you how to be an angel investor or be a better one if you have not achieved the results you hoped for in your previous investments. 

The “Freudian” perspective on Angel Investing

Becoming an “angel investor” is not for the faint of heart.   It isn’t quite as exciting as jumping out of plane at 40,000 feet or hang gliding off a cliff at 3000 feet, but when it comes to knowingly entering into an investment that by its very nature has the potential to lose every penny of your hard earned cash… that takes guts.   So here is what one needs to understand about the men and women who boldly go where mere real estate and stock market investor don’t dare to go.  Of Freud had been around during the Dot.Com bubble and the latest up/down of angel investment,  he may have applied his theories of the Id, Ego, and SuperEgo in this way.

The  motivation for sophisticated affluent men and women to become angel investors or as some might label them, early stage venture capitalist is driven fundamentally deep within to face the risk in pursuit of a perceived big reward.   The thrill seeker who jumps of a cliff to fly through the air, does so knowing there is risk, but the reward, the thrill, the adrenaline, the sense of accomplishment, the oohs and aahs of their peers that see their success….all triggers the desire to face known risk.   Becoming an Angel Investor can be compared when viewed through the Freudian theory of development.

  1. Investor Id:  What does the Id care about?  ME, ME, ME….so in the realm of money, that translates to greed—What is in it for ME. So these these folks will take the risk because it has the potential biggest return on investment and the only asset class that actually has potential to provide multiples on money within a decade of the investment.   And the bragging rights of being in some hot new thing doesn’t hurt.  Whether on the golf course or over cocktails talking about breakthrough in technology,  “Sure, about a year ago I invested in a little company that does Y” or is in a popular magazine for doing X….”Oh ya, I have some of the equity in that company…. got it for a song as an early investor.”
  2. Investor Ego:  This is where the pragmatic hat goes on and even though the investor wants to make all the money and negotiate all kind of terms to guarantee that, they realize that the CEOs need to be motivated, and there needs to be room for other investors to come on and follow on investors.   So instead of mitigating risk based on onerous terms, they will seek to invest in deals that inherently have some of the risk removed because the company has been validated.   This is where the real RISK vs REWARD trade off come.  “Without a more experienced management team to ensure you can execute, I will require a board seat.”
  3. Investor SUPEREgo:  This is where an investor become a “Compassionate Capitalist”.  Usually, only the most advanced investors reach this stage.   They have made so much money from their own entrepreneurial endeavors and from their past angel investments, that the can “afford” to be generous with their investment into entrepreneurs.   They know that many of their investments will fail and they go ahead because they really want to see that innovation get to market or to give that entrepreneur a chance to succeed because they can see the spark.   They have confidence that some percentage of their investment will hit payload and make up for everything they have lost previously.   They have pursued their professional hobby of investing with zeal by learning by doing and learning from others, so that their Financial IQ is top of the game.

Unfortunately, for those that jump in at the Id stage, they sometimes never get to the other stages of advancement because they make a poor investment, lose a lot of money, and decide to stick with the much more predictable stock market and real estate.   This is why education for investors at that very early stage of their exploring angel investing is so important.

Angel investing is the only type of asset class that the investor can’t get advice from their financial planner or wealth manager regarding.   SEC will fine that trusted adviser and potentially even pull their license if they find out they advised them on a private equity investment…..or so that adviser thinks.   It really only happens if they take a commission on the transaction and does not run it through their broker dealer.   Nonetheless, most often the case is that the investor can’t sign up for weekend class, has to drudge through book written like college text books or learn by doing which early on means learn by losing.

Fortunately, as the angel investor industry has gotten more and more successful and sophisticated, the industry has taken it upon themselves to begin offering education for investors.  We have seen large conferences being offered in Boston and San Francisco.  With the advent of Georgia passing their own Angel Investor Tax Credit to encourage sophisticated investors to put money into early stage private companies, there have been an uptick in education being offered in Atlanta. Other states offer tax credits and subsequently education.

We have long been a source for investor education through our email newsletter and our “Inside Secrets to Angel Investing”. Excerpts are available when you optin. Information is available about the book and the limited time offer with 6 bonuses at http://angelinvesting101.com

The Real Nature of Money – One Compassionate Capitalist’s Perspective

Recently I broadcast an episode of my Compassionate Capitalist radio show about the events leading up to the economic malaise we have been experiencing, the realities of the “fiscal cliff”, and some good things that might just occur in the coming year.

Broadcast:  Compassionate Capitalist Radio Show – Economic Perspective and Outlook

It prompted a question from an entrepreneur:

If the SNP goes to 700, how will this matter?

If the SNP goes to 700, what is the best way to truly know what people with money are waiting for?

Interesting question Rick.   Not sure if I am the best person to answer it for a number of reasons…..  I know a lot of wealthy people took their money out of the stock market when all of this mess started.   The ones that think long term either took it out and have it “sitting on the sidelines” as I have said, happy with the 1-2% they might get or moving it into Bonds where the interested rates are playing to their advantage.   If they missed getting out of the market when it first started to tank,  they have already excited or are in the process of exiting…causing the slide itself.   When it hits that mark, smart investors that are still in the market will sit and wait for the rise, because they realize the only ACTUALLY lose money if they sell at that point.   Unless they need the capital loss to offset a capital gain.  The people that make money on a fall like that are the institutional investors and hedge funds that play the margin and bet the market will fall so they get paid for winning that bet.  But in this day and age, harder to get the “seller” for those types of bets.  Hitting 700 may be the trigger that gets some of those investors on the sidelines to get back into the game.

Good companies with solid operations and profits can easily have an undervalued stock when the stock market is in a free fall—or even a flat bear market, and then when it rights itself, that stock will regain it’s value, creating a windfall of capital gains for that savvy investor.   The reality is that the market goes up and down.   It has and always will.   Economic factors will contribute to it the start and the stop and the length of a bear or bull market, but inevitably there will be a change in course.   Just as I spoke of in my radio show last Friday….no market can forever go up, nothing grows in value forever, and the reason the economic factors that later become defined as a “bubble” is by its very visual image….something that will grow until it pops by it’s own unstable nature.

If the market hits 700, and that is not to say it will or won’t, it won’t be because of a clear indicator of economic malaise or any fiscal cliff…those are contributing factors, but it will be because of the people that buy and sell and large institutional traders that are making large hedged bets that can shift a market and cause corrections in the market.

I found this interesting article that talks about the cycles and shifts of the market decades and maybe it will bring a little solace to your concerns…. http://www.tradingonlinemarkets.com/Articles/Trend_Following_Strategies/History_of_Stock_Market_Cycles.htm

AND yes it will be bad, but it won’t last forever, part of that is out of our control. And don’t let the idea of it being out of your control cause fear….. because remember fundamentally…. the money doesn’t go away.  It just moves.   It is all still there.   The challenge for the entrepreneur is to find that investor, and convince him that his opportunity is a more profitable…and potentially safer…. investment.   If the market goes to 700 and the investors that have potential to be angel investors are out of the market, along the way a light bulb will have gone off that says…. INVEST IN PRIVATE COMPANIES….you have more control over their success than you ever had in that public stock that you held that went up and down and all around.

….just one gal’s opinion.

Hope you have a Happy and Prosperous New Year.

Best Regards,

Karen Rands

To get the full economic assessment and story behind both the broadcast and the answer to the question,  please read my (long – but thorough) article blog post on Entrepreneur Blog Space

Bottom Line-

Want to take back control of the economy, your wealth, our country?  Become a Compassionate Capitalist.

What is a Compassionate Capitalist – besides something we need more of?
A compassionate capitalist is someone who invests Time, Resources, Knowledge and Money into entrepreneurial endeavors to bring innovation to the market, to create jobs and to create wealth for the founders and investors. It is the ultimate trickle down economic recovery plan. Because, if you invest in building up companies that can thrive in the new economy, then jobs will follow, and income from those employed will be spent in the marketplace and those old traditional companies producing goods and services will also gain economic stability and keep employees and maybe even expand with purchase of equipment or the addition of employees. You can’t control what our politicians do.  You can’t control what a President of a public company does or how the market trends will impact their value.  You can’t control how the bank will value your property .  YOU CAN Control if a company with innovation can build a good company that creates REAL Value and real jobs.

New Year’s Resolution….. Become a Compassionate Capitalist!

Taxes Should Not Effect Angel Investors, according to Home Depot co-founder

One of the co-founders of Home Depot, Ken Langone, is a great testament to how great wealth can be created through early stage venture capital investing and angel investing.   Although the riskiest of investment types, it also can have the greatest reward–both financially and personally.    As Home Depot folk lore plays it, it was as a result of Ken Langone’s personal investment and calculated risk to bring in other investments into Home Depot when they were still somewhat unproven that financially fueled their growth from their first location to the point they could attract institutional financing.

Fast forward a few decades and Ken has gone onto create tremendous wealth, primarily as a result of his continued investment in early stage companies.   He is a true Compassionate Capitalist(tm) because he invests time and money to bring innovation to market and create jobs.   As he stated in his interview on Fox News recently, he doesn’t let a tax consequence determine whether or not he is going to help an innovation get to market that could solve a problem or improve the way business is done.   If he can see the benefit, make money, so what if the government wants a piece of that, he still made money and the he is pleased the innovation got to market and the jobs were created.

Back story Press Release with Ken Langone’s bio.

Top 75 Angel Investor Groups in the US – NBAI on the list!

Since 2005, we have been working diligently to rebuild the angel group, the Network of Business Angels & Investors.   We have positioned ourselves a little different that other traditional angel groups.   The members of NBAI collaborate on due diligence, but make indendent decisions.   They are willing to invest early stage capital in companies not from Georgia, as long as there is a lead group of investors in that company’s back yard.  Lastly, they are somewhat industry agnostic, having invested a wide variety of emerging growth companies since inception in 1994 and since the rebirth in 2005 (http://www.launchfn.com/id155.html  more are being added as I write).  The angel investor members of NBAI look to see that the business model makes sense, they have a solid management team that can execute, a unique value proposition to the market and can the investor expect to make money on the investment.   As one of our investors at the last NBAI Meeting so apply demonstrated with his t-shirt under his jacket “What’s $$$ in it for me?”.   Anybody that thinks angel investors aren’t ultimately motivated by a positive return on investment is simply naive.  Yes they may have double bottom line motivations….minority owned business, or good for the environment, or solve a terrible health problem….but at the end of the day it still needs to produce a return.   Think about, if it doesn’t produce a return, that means the company failed and any other motivation they had to be a “Compassionate Capitalist” to bring innovation to the market, create jobs, create a legacy….also vanished with the failing of the company.  

Making the Inc Magazine’s Top 75 Angel Investor Group is validation and reward for the hard work of the last 4 years to bring to Atlanta and the Southeast a “country club” for small business investors who want to look at good deals that have potential, make friends among their socio-economic peers, and make some money by being “Compassionat Capitalists”!  http://www.inc.com/magazine/20090101/wingmen-and-women.html

Currently the NBAI Member Meeting is held on the 2nd Wed of each month in Atlanta.  Our next event is on June 10th, followed by August 12th.   All the details about the event, attending as a non-member and applying to be considered for entrepreneurs can be found at http://www.launchfn.com/id150.html

New Members get a copy of the 5 book series authored by Karen Rands “Learn to Be an Angel Investor” that goes through the history, process and decision cycle for a new investor.  http://kyrmedia.com/index.php

NBAI (www.nbai.net) has great plans instore for the remainder of this year.   We are joining the Angel Capital Association and we are using AngelSoft so our members can collaborate on deals they like and then syndicate with other angel groups.   We are laying the foundation to start an angel fund for providing the first capital in on the A Round.   It is truly an exciting time as NBAI grows to new heights.

Picture from a recent NBAI Meeting