Are you a dynamically active angel or a passive lottery investor?
March 12, 2018
The Nordic Angel Program started with its first training session on March 7th. Participants heard a presentation on portfolio building by the FiBAN Chairman of the Board Janne Jormalainen. How you build your portfolio says a lot about you as an investor and directly affects how successful you are likely to be.
The Nordic Angel Program has four training sessions, which cover topics from portfolio and startup board building to investment criteria and due diligence. The first session covered portfolio building and screening guidelines. In addition, the participants got acquainted with Startup Includer, a match-making tool for investors and startups used in multiple startup conferences.
Statistically, 54% of angel investments fail, according to FiBAN’s IRR study. Thus, it’s good to carefully consider what cases you give your time, passion and even emotional attachment, since it is hard to stop funding, as Janne Jormalainen emphasizes. In Finland, angels actually spend a lot of time on their cases – sometimes an entire week per month. How do you manage your portfolio when you only have four weeks in a month? Besides, not everyone is a full-time angel and use 100% of their working time on their portfolio companies.
The main answer is to clearly split your portfolio into active and passive investments. In active ones, you probably sit on the company board and put in sweat, as well. But, there are different levels of activity. Here’s how Rein Lemberpuu, Business Angel of the year 2017 from EstBAN described his commitment: “I call myself dynamically active angel. I have twenty companies in my portfolio, so I can’t work for all of them all the time. However, I do make myself available – as needed. Entrepreneurs can call me on Friday evening and I will answer.” You can also change your strategy throughout the years: after spending lots of time and money on several companies in the beginning, an investor can change their strategy to smaller tickets and less time spent on individual companies.
What is a passive investment, then? The ticket size, as mentioned, is usually lower. A passive investment also makes it possible for an investor to enter sectors or industries that they are not yet familiar with. “I am not eager to invest into something that I don’t understand, but I have made some passive investments into completely new sectors. In such cases, given that the entrepreneur is convincing, I put my trust into the Lead Angel, who needs to know the industry”, comments Saga Forss, partner at Broadius Partners and an active business angel. Such cases are always high risk investments, almost like purchasing a lottery ticket.
Whether an investment is a passive or active one, they all have one thing in common:
“You need to have trust IN YOUR CO-INVESTORS
and BE PASSIONATE ABOUT whatever you invest in! “