Sourcing – Early Stage Investing Series

Investing in a business venture is a life-long dream for many people, and a dream that unfortunately, is rarely ever seen to fruition. But why? We all have heard and even know how difficult it is to operate a business, but often times, even more challenging and risky is finding out what the heck kind of business to invest in in the first place. Furthermore, discovering a worthwhile venture is of vital importance if we want to one day make it into the operational stage of a business – because you can’t run something you don’t have.

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!


Source:

David Amis-Howard Stevenson (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.

 

What did you think? Leave some feedback! :)

8 thoughts on “Sourcing – Early Stage Investing Series

  1. Austin,
    I think the most valuable advice given next to creating the one-pager is to invest with others. Going into an investment with a group allows each person to use their specific skills to help move the deal through versus one person. It allow helps to lower the risk for all investors involved. Great job.
    Nicole

  2. Hey Austin,

    Great article! I liked how your number one was networking, I couldn’t agree more! With networking comes word of mouth marketing, which will lead to bigger opportunities. We have to invest in thanking our network too. We can get a lot of referrals from these connections and we want to thank them. And, you are right about maybe trying to invest with others from your network, it might be less scary.

    Great job!

    Christina

  3. Hi Austin,
    This can apply to the investors and to the Entrepreneurs, networking with others and having a support system goes a long ways in planning a business. As an entrepreneur I find it hard to start a business venture because of everything involved. I want to start a business so bad but how can I run something that I do not have or that I feel that I may not have enough experience in yet. It can take a lot of planning before a decision can be made before investing money and time. I feel that the time spend on vetting out some of these processes is just as valuable if not more important than the money that can be tied up in a venture.

    Thank you for sharing

  4. Austin, great post I like the way you laid the foundation and then presented the three facts about sourcing. 1. Building your professional network, let your intentions be known,2.Plan on investing in many different deals before you reach success,ans 3. Don’t just invest alone, make deals with people from your network. These three really open you up to growing your business.

  5. Hi Austin,

    You did a nice job summarizing the key points. I agree that networks help identify opportunities and they help spread the risk when one invests with others. I think similar networks are equally important for entrepreneurs as a way to identify possible investors. Would you agree?

  6. Austin –

    I think you have a good point with the built-in safeties that working with a group of investors can provide: a second set of eyes might spot something the individual missed. Nice work.

    Nick

  7. Hi Austin,(networking
    Great article! I totally agree with # 1 (networking) ; the exchange of new ideas, information is always useful to somebody. It may not be for you but, hey, it may be for a business associate that you keep in contact with on a regular. I am quick to pick up the phone to pick the brains of my associates, friends etc. I think it is beneficial- its just like the library except the information can be heard.

  8. Austin, I think #1 and #3 are key pillars for newbies. We network to gain access, a support system and referrals. Being in the company of like mind individuals helps build our confidence and our strategy for making successful deals. Angel Investing is not for the silo minded.

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