8 ways to Mitigate Risk as an Angel Investor

Research done 6 years ago determined there were 7 key ways an angel investor could mitigate risk when making a private equity investment in an early stage company.

See the original article: http://myvirtualangelworld.com/2008/08/05/mitigating-risk-for-private-investors/

Additional experience in working with investors since then that have made multiple investments, yet not lost their investment, reveals one more way to reduce the risk in these young private companies. Number 8 method is to ensure the company has a clear strategy for generating revenue sufficient to sustain growth and profitability.. Market Validation, #7, is key because you know at least some customers want to buy the product or service, but only actually becoming profitable can lead to the kind of company that will produce a liquidity event that will provide a return on the investment. The company must understand how the will get their first customers, then expand their sales force or sales strategy to grow their pipeline, while also anticipating what they will need within their operations to support that sales growth.

Listen to the original podcast that has multiple guests explain each area that an investor can mitigate risk:
On ITunes (episode 153) https://itunes.apple.com/us/podcast/karen-rands-compassionate/id302182696?mt=2&ign-mpt=uo%3D4
Or download BeyondPod for Android or IPhone and subscribe to the Compassionate Capitalist show and listen to this episode and any others.

This particular show is longer than the others because of the rich content. The first 7 ways for mitigating risk are:
1.Intellectual Property Protection – patents, copyrights, trademark, trade secrets
2.Management Team/Advisers – experienced management from within or recruited from outside
3.Insurance – key man insurance, errors & omissions, other corporate insurance
4.Strategic Planning – what will they exactly do once they have their funds
5.Sales Validation – do they have the sales team/strategy that can achieve the expected results
6.Terms of Investment – small terms may have big impact on the angel investor down the road
7.Market Validation / Competition – having sold something or having market validation in a pipeline, joint venture, or in improving on the competition go a long way to validating the opportunity

This information is offered as part of an ongoing effort to educate High Net Worth men and women with a desire to become angel investors and are new to angel investing on how to diversify their portfolio to include private equity investments and increase their odds to produce a return on investment.   This is being delivered through the National Network of Angel Investors.   This particular topic will be a new chapter in the soon to be released revised edition of “Inside Secrets to Angel Investing”.   Visit the NNOAI website or the AngelInvesting101.com site to sign up for free excerpts from the Inside Secrets to Angel Investing.

And follow us on Twitter:   http://twitter.com/NNOAI

And on Facebook:   https://www.facebook.com/thenationalangelinvestornetwork

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!