A COMMUNITY WHERE INVESTORS CAN CONNECT WITH SMALL AND MEDIUM ENTERPRISES IN THE CARIBBEAN
The thought of receiving a cash injection into your business is always attractive, and when it comes with experience and knowledge the appeal is even greater. Often referred to as ‘SMART money’ due to the combination of financial and intellectual capital, despite the attractiveness of Angel Investment there are a number of considerations that should not be overlooked.
- Are you willing to take on a business partner?
- Are you willing to sell equity in your company and share control in exchange for funding and mentorship?
- Could your business use the knowledge of an experienced business person?
- Do you have an innovative high growth business that can scale into overseas markets (export potential)?
- Could your business grow exponentially with additional cash investment?
- Can you demonstrate that your business can generate significant returns for investors in 5 years?
- Can you articulate the exit strategy for the investor? (How would they get a return on their investment)
The Caribbean Business Angel Network (CBAN) aims to improve access to investment opportunities throughout the Caribbean, for angel investors. It is focused on connecting investors with start-up, early-stage and growth companies seeking finance; increasing Caribbean deal flow.
ENTREPRENEURS JOINING CBAN WILL:
- Showcase their businesses to accredited Angel Investors
- Gain access to international industry level knowledge on Angel Investing
- Be offered assistance in the preparation of pitches
- Be offered follow-up support during the deal negotiation
A COMMUNITY WHERE INVESTORS CAN CONNECT WITH SMALL AND MEDIUM ENTERPRISES IN THE CARIBBEAN
Finding the right investment can be challenging, here are a number of factors to consider that may increase the likelihood of success:
- Having the right attitude when it comes to risks. While big returns are possible, don’t forget, you could lose all of your investment. Only invest if you can afford to lose.
- The ability to spread the risk. A successful Business Angel often has a portfolio of 10 or more investments. Fewer than ten investments could be too small a portfolio given the high chance of failure of individual deals.
- Diversification. Having a diverse portfolio is another means for spreading risk. With equity being a very illiquid investment: your capital could be ‘locked up’ for many years. Therefore, Angel investments should not make up more than 10% of your overall net assets.
- Research. Due diligence is essential when it comes to making investments. Studies have shown a direct correlation between the level of due diligence and the success of an investment. Investments where the investor has spent at least 20 hours on due diligence have been seen to experience significantly fewer failures.
- Patience. Be prepared for unforeseen delays and failures. Business plans will be revised and exits rarely take place when first planned and good exits tend to take time.
- Planning. Don’t just hope that exits will happen: ensure the investee is working towards an exit from day one.
- Objectivity. Becoming emotionally attached to a failing investment is linked to poor returns. Sometimes it’s better to walk away rather than put more money and time into a failing investment.
- Keep cash in reserve. In order to build up a successful portfolio it will likely involve follow-up rounds of investment. A good rule of thumb is to allow a 200% reserve for follow-up investments.
e.g. if you are making individual investments of $5,000, you should be able to make an overall commitment of $150,000 (assuming a portfolio of ten companies with a 200% reserve for follow on investments) and have an overall net worth of $1.5million (so that angel investments make up only 10% of your overall assets).
A COMMUNITY WHERE INVESTORS CAN CONNECT WITH SMALL AND MEDIUM ENTERPRISES IN THE CARIBBEAN
Angel investing typically involves high-net-worth individuals (successful entrepreneurs, industrialists, corporate/business executives, and investors) investing their own capital and time in start-up and early-stage businesses, with a goal to both make a financial return and contribute to the develop of entrepreneurial communities.
Globally – both in developed countries as well as increasingly in developing countries – angel investing is often a favorable form of capital for seed and early-stage enterprises, as angels generally understand the inherent risks associated with early-stage ventures and have a higher risk tolerance. In addition, angel investors can add a suite of non-financial support to entrepreneur-led enterprises.
