Being excited about an investment is the most important thing that should guide an angel’s decision to invest, and the motivation behind investing should be to have fun, according to South African entrepreneur Alan Knott-Craig Junior.
Knott-Craig believes angels should only invest in projects where either the founder or the business idea spikes the investor’s excitement, as this is the best way to counterbalance the low success rates of angel investing.
“For angels, being excited is the most important thing. Excited about the jockey, or idea, or both. The stats show your odds of making money as an angel investor are very low. Don’t angel invest to make money. Do it to have fun,” Knott-Craig told Disrupt Africa.
While Knott-Craig concedes that certain business and strategic filters will apply to any investment decision, he believes this sense of excitement is the most critical filter of all.
Nonetheless, he says having strong filters in place – such as fitting in which current trends, and having a competitive advantage – will play into a startup’s likelihood to produce returns for the investor.
“An angel investor is probably having fun, trying to learn something new, trying to help a youngster out, and finally, trying to make some money. The “making money” part is [critical], which is why you need filters, otherwise you may as spray your cash everywhere, with no expectation of financial return,” Knott-Craig said.
Having made an investment, Knott-Craig advises angels to stay away from the running of the project. For this reason, he says angels should feel free to invest in any sector, regardless of their experience or knowledge of the area.
“Angels should be hands off. Most angels I know want to be hands off,” he said.
“Normally [investments are in]a completely new field so the angel can learn something new.”