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Business angels use gut instinct when choosing investments

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New research has shown that Angels Investors (high net worth individuals who invest money and knowledge into companies who require funding) mainly follow their intuition ahead of financial calculations when deciding whether to invest in a company.

In a survey conducted with 50 experienced Angels, a staggering 73% said they used their ‘gut feel’ to a great extent or as the main way to value an early stage business and every single Angel said they used it to some extent .

“When a company is just starting out it generally has no assets or track record on which to base an accurate valuation.” said Lois Cook, co-founder of Angels Den, one of Europe’s largest Angel networks. “Instead most Angels rely on their own intuitive judgement of how much money the company could make and what share would make that a good investment.”

Human and market factors also play a big part, the main one being the management team, and whether they could work with them, which was used to a great extent by around half the Angels.

Surprisingly, most said that they don’t rely to a great extent on an accountant’s or professional advisor’s valuation. Almost a fifth of respondents said they didn’t rely “at all” on their advisor’s calculations. Only 5% said that they relied completely on an advisor’s calculations.

“Angel investors are drawn to entrepreneurs with passion,” said Bill Morrow, co-founder of Angels Den. “The most recent deals we have done have been based on personality, on the Angel seeing some spark and almost investing in the person rather than the idea,” explains Bill. “Business Angels invest up to £1bn a year in early stage businesses in the UK. They are the life-blood of the start-up business world. As well as finance, Angel investors invest knowledge into young companies.”

Business Angel Information

We have a number of useful business angel articles on Bytestart - here are some of the most popular ones:

Posted July 26, 2010
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