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Synopsis and Critical Evaluation of Angel Investment Criteria Essay

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Updated: Dec 11th, 2019

Introduction and Overview

Entrepreneurs often need external funding to grow. Angel Investors is one of the groups that provide financial support for start-up businesses. The Journal of Small Business Strategy shows the outstanding elements in Angel’s investment criteria. This paper provides a synopsis of the journal and indicates a personal crucial evaluation of the journal.

The journal uses a two-phase approach involving a qualitative first phase and a quantitative second phase to evaluate the investment criteria. The journal is based on a survey and observation of members of Tech Coast Angel organization (TCA). TCA is the largest US Angel organization. As of August 2004, it consisted of 173 Angels (Winter 89).

Qualitative Method

Qualitative phase was used to identify decision criteria of Angel that could be helpful in the quantitative phase. The study used observed screenings and associated discussions, which led to the emergence of common themes. The leading theme was passion. Entrepreneurs who showed passion for their work received more funding than those who may have had good business plans but showed no passion. Angel believes that dedication and passion can make a business succeed.

This is particularly because it believes that managing business start-ups is challenging and requires passionate and committed managers. The journal uses an example of financial services entrepreneur who impressed Angel when he said he had put almost all his money, including residential house mortgage, into the business. Subsequently, trustworthiness played a role in Angel’s success.

From its perspective, if an entrepreneur is avoiding a question, he/she is not trustworthy. Further, entrepreneurs who provide contradictory answers lose reliability and trust. The survey showed that lack of trust would lead to cancelling of the merits of the investment venture.

Another theme was the effectiveness of the management team. Angel did not investigate the shortcomings of the current team. It was interested in finding out if the team had passion, devotion, and understanding of their responsibilities. Management that was part of a previous successful team had an added advantage. Moreover, Angels often inquired from the entrepreneurs if they understood the team they needed for success.

It also wanted to know the characteristics of the management teams that are important to the client. The easiness to coach the team was another important theme that featured. Teams that were perceived to be easy to train always had an advantage over the others.

Other essential themes that were discussed were experiences of advisors, experiences of the teams, records of accomplishment of members of the team and corresponding skills of the advisors. Finally, Angel seeks to know who the potential acquirers for a particular venture would be (winter 95).

Quantitative Method

The qualitative method was used to confirm the results of the quantitative phase. It confirmed that the top most important themes are trustworthiness (4.81), management team (4.64), enthusiasm (4.81), and exist (4.53), five being excellent and one low rating.

The journal indicates that these results are similar to those of Van Onsnabruggle, which showed that enthusiasm ranked first and trustworthiness second. Moreover, exist which emerged top in the qualitative study ranked fourth in the survey. Onsnabruggle reported that exist is at the 24th. Most researchers hold that the management team ranks high in investment criteria. However, this study indicates that it ranks second (Winter 97).

Critical Evaluation

The journal has both positive and negative aspects. Investors can use it with care and successfully identify viable entrepreneurs. First, the article provides that having a vast business model is not sufficient to help organizations obtain funding. Moreover, a good model is not a guarantee that the business will succeed.

Notably, an entrepreneur’s ability to convince an investor that he/she understands the challenges ahead and are prepared to deal with the challenges is highly crucial. Further, the traders’ management teams must consist of those who are qualified. In everyday life, one understands that an effective plan that is not fully implemented serves no purpose. As a result, Angel is right to gauge business success by evaluating the passion, trustworthiness, and competency of management teams and the entrepreneurs.

Start –up businesses face exceptional challenges and, as a result, passion is a leading theme. Despite the useful information the journal provides, it fails to address certain investment concerns. For instance, the respondents were predominantly male (sixty-eight males against four females).

Therefore, no evaluation was carried out relating to gender disparity. Moreover, only one Angel investing organization out of 173 was surveyed (Winter 89).

The sample size was, therefore, inadequate to predict accurately the investing behavior of the US population. This possibly indicates the reason for the disparity in the results of the study and the results of other surveys. The study simply confirms that effective management is useful in determining the future of a business, but fails to confirm that the difference in the rating of certain themes is accurate.

Conclusion

Angel’s investment criteria correspond to those in the findings of Onsnabruggle and other researchers. The two-phase approach consisting of a qualitative first phase and a quantitative second phase shows that Angel’s main investing criteria include passion, honesty, and trustworthiness of the entrepreneurs. Most studies confirm that honesty and trustworthiness are some of the main themes that determine the successes of a business.

Work Cited

Winter, Fall. “Angel Investment Criteria.” Journal of Small Business Strategy 17.2 (2007): 89-101. Print.

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