Finding business opportunities to evaluate and invest in is called sourcing, and it’s a topic that is well trodden territory by angel investors. In the book by David Amis and Howard Stevenson called Winning Angels, the authors lay out numerous strategies for going about the opportunity sourcing process. Below, we will briefly touch on three (of many more!) best practices that will lead to greater sourcing success.
1. Build your professional network, let your intentions be known
Although this one might seem obvious, it’s important that we understand the fact that in order to find opportunities, you have to know people who can tell you about them. It’s a ground step, and there simply isn’t any way around it. But don’t be a one way receiver of information – the key here is to be useful to your network just as they are useful to you. Pass along information about opportunities you find so that other investor angels can take a look. Each person has a unique frame of business that they are looking to invest in, and even though an opportunity might not excite you, it might be just the thing for another investor. Finally, spread the word among your network that you are interested in investing in a business – make these intentions common knowledge throughout your group.
2. Plan on investing in many different deals before you reach success
The more deals you make, the greater the odds that one of the deals will pan out and be a home-run success. And although it takes a lot of patience and funds, having the odds of success in your favor is a journey worth planning. At first, having many investments may very well be impossible due to financial shortages, but planning on a long-term strategy of many hits and misses is the point. Not every deal will make money, so be patient when you don’t win. Keep developing your process and go back to try again with the lessons you learned.
3. Don’t just invest alone, make deals with people from your network
This can be especially helpful when you’re first finding your way in the world of angels. If you can pair up with one or more experienced investors (or even inexperienced, at least you will have more people to bounce ideas off of), your chances of success and growth begin to rise. Besides, acting with other people can limit harmful emotional motivation that you may bring to a particular deal. Maybe you fell in love with the idea, but the business just doesn’t make sense. A good group of partners can help shake us back to reality!
David Amis-Howard Stevenson (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.