How to become a good Business Angel?
The perfect startup investor's guide
Over the past few weeks, we at Super Capital have met with several entrepreneurs who have become "de facto" investors after selling their company. And they all told us the same story:
"I sold my box and then started investing in several startups. I was a little too euphoric. I lost my entire stake several times. However, the business seemed very promising on paper and then some renowned investors had also invested. In fact, I have trouble understanding what to look for before investing in a startup. What to trust?".
Yes, it is not because you are a good entrepreneur that you are a good investor in startups. And to complicate things, it is not enough to be a good financier either! So what skills do you need to develop? At Super Capital, we believe that to be a good Business Angel, you need to have a good sensitivity to the product and marketing in the broadest sense, to know how to understand the strength of a business model, to know how to analyze the structure of a market and to know how to assess the ability of the leader to steer the boat without it taking on water, to sustain the activity and to convince other stakeholders to come on board (employees, partners, investors ...).
More concretely, we are often asked what we look for in a startup before investing. Here is what we think is essential:
1. Strong monthly revenue growth with a gross margin that follows this growth.
2. A clear and established business model.
3. A very strong, obvious value proposition for customers (and also for providers if it is a platform).
4. A Customer Acquisition Cost (CAC) as low as possible, a LifeTime Value (LTV) as high as possible, at least 3x the CAC.
5. A fragmented market, composed of aging, not very innovative, not very digitalized players.
6. A team capable of evolving, questioning itself, listening and synthesizing relevant advice...
What not to do, in our opinion :
1. Invest too much in the first round (you need to diversify your investments!)
2. Think that you will get out easily in 3 years (it is never easy, and you should rather think in 5 to 10 years...)
3. Confusing shareholding with management (you are a shareholder, not a co-manager).
4. Investing only because such and such a prestigious investor also invests (many beautiful and big funds take monumental bowls. It's part of the game and their size means they can absorb a loss of, say, 500k€... Not you...)
5. Invest because the founder looks like you, because you can see yourself in him (we are all different and there is not really a typical profile of the successful entrepreneur. In his market, you may need a different angle of attack than you would have done. You may be a hierarchical manager and he may be a follower of the free enterprise. But both work...).
6. Invest only because this concept has already worked in another country / sector / format (what worked in Sweden or in the tomato market does not necessarily work in France or in the melon market).
7. Be too rigid / dogmatic about your investment criteria. It would be a shame to miss the next unicorn because its current MRR is 9k€ and not 10k€...
Corentin Orsini - founder of Super Capital and Angel investor
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