At what point is a business angel investment decision taken? Last week, Green Angel Syndicate decided not to make an investment in one company. The week before, we decided that we would make an investment in another company. What was the difference?
In both cases, the company had presented to the management, which had decided to propose the company to the Membership. In both cases, the company had satisfied all concerned that it is innovating effectively in areas of resource use that are close to the hearts of the Green Angels. In both cases, the companies had met the standards required of the check-list that all angel syndicates, all independent angel investors, apply to those requesting investment.
It sounds like a mechanical process, but it is not. At every stage, judgements concerning personalities, capabilities, integrity and compatibility are being made. The last is sometimes the most important. Angels, and our angels are no different from any other, often want to work with the companies they support, because they can see ways to help them. Investee Companies often welcome this support. It is best provided and received in circumstances where the personal fit between investor and company management has a natural rapport. So compatibility is crucial. But both companies had passed all these tests. So what was the difference? It was the market.
Without breaking any trade secrets, I can tell you that the company which we decided to support is in the Building Energy Management Systems (BEMS) market. This is an established market with a fifty-year history of technology and service development designed to maximise the efficiency of corporate, commercial energy usage. It is undergoing a radical transformation at present, on account of the related technology developments in energy metering, data collection and control.
It would be unfair to be specific about the company we decided not to support, but suffice it to say, the market has not yet been established. It is a new market in which the last decade has produced experiments on a small scale, but no breakthrough that achieves acceptance or recognition that the new methodology is the way forward.
It is the ideal situation for the investor. The product has demonstrated it can work; the company has demonstrated it can sell; and the early revenues show its business model is viable.
This contrast has direct consequences, most obviously in the technology risk associated with the products and services of each company. The former has been able to test its products and services easily, because the sites and their owners are readily available, and indeed eager to try out something that might improve their energy management. The latter has struggled to mount a full-scale pilot test, and will require years rather than months before this can be done.
The former can therefore show that it has taken nearly all the risk out of its technology, because the market is so readily accessed. And the consequence of this market access is that it has also been able to sell and secure customers before it has come to us for investment. It is the ideal situation for the investor. The product has demonstrated it can work; the company has demonstrated it can sell; and the early revenues show its business model is viable. The opportunity is there. The main risk is whether or not the management team can convert the opportunity into a reality. That, perhaps, is the tipping point, the moment the investor realises that everything is in place for success, except for his or her money.
If you want to hear more about this Green Angel Syndicate investment, or the rest of the pipeline, contact Nick Lyth or Simon Acland on firstname.lastname@example.org or email@example.com