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Aug 17

Do Angels Really Bet on the Jockey?

A common phrase among angels is that we bet on the jockey not the horse. That means that the deciding factor is based on the people and the personalities behind a project more than the other aspects of the project. Anecdotally, this may be true because we like to invest in people who are innovative and in whom we can believe. But is it really how angels decide across a large sample of businesses? Angels are also very discerning and make decisions based on profitability and the likelihood of a successful product. Could this be a misleading perception of angels? It turns out it is only half-true. I recently read Carpentier’s & Suret’s (2015) study on the decision-making of business angel group members.  The study reported that of the 636 proposals that were submitted to an angel group, the primary reasons for rejection were product and market strategy.  Weaknesses in the management team/entrepreneur were not as important reasons for rejection as product and market strategy weaknesses. In addition, they found that of the proposals that were funded, the entrepreneurs/management team had industry experience, and the industry experience dominated the management experience and start-up experience.  It looks like when we bet, we bet on the jockey; when we forego the bet it is because of the market and product and not the jockey. It is important for entrepreneurs to consider angels’ motivations and tendencies. Entrepreneurs need to address the product and market weaknesses to make the best deal possible. While great teams might look like worthy bets the same way jockeys make horses look good, they won’t cross the finish line unless they also are riding a strong horse with a solid market and product strategy.

 

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