How to Spot Potential in a Business Opportunity

Crowd for Angels

Crowd for Angels

At Crowd for Angels we carefully vet every company that appears on our platform – indeed, only 7 out of every 100 businesses to apply to pitch for funding via Crowd for Angels have been given the sign off by us.

We want every pitch you see on our platform to have serious potential as a small business investment. But even if you’re a savvy, experienced angel investor, you might not be completely familiar with the kind of businesses we offer for investment. Investing in start-ups and small businesses requires looking out for different things than investing through public stock exchanges in big, established companies does.

Those concerns might put you off using crowdfunding at all – but that could be a mistake, since getting in early with a start-up that has a bright future could bring significant rewards later on.

Here’s a few pointers for investing in our pitches to get the best possible returns.

Is there a market need?

A good business has to provide something people actually want. Solving a problem should be at the core of any pitch, and ought to be the first thing you look for when you’re judging its investment potential. Check to make sure they’ve done their research and have evidence there’s a real market need for their product or service.

What’s the competition?

A quick search for relevant keywords should be enough to see what competitors (if any) the business has. If any seem to clearly outperform the business you’re looking at – if competitors can deliver a better or cheaper product, say – then that’s grounds for dropping the investment. Conversely, if the business you’re interested in has a noticeable competitive advantage, that should give you greater confidence to invest in it.

What have they already done?

Unlike more established businesses, start-ups won’t have a history of their performance for you to draw on. Similarly, small businesses looking to expand quickly are venturing into uncharted territory. That can limit attempts to predict future successes on the basis of past outcomes. But make the effort, while accepting that there’s added uncertainty due to the early stage nature of the investment. If a start-up is already turning a profit, that should draw your interest (though remember that that’s relatively rare, and you shouldn’t discount those that aren’t yet profitable).

Who is the CEO?

The smaller a business, the greater the primacy of the CEO. Since they’ll often be the founder, they’ll have a personal relationship to their company – indeed, at this stage their company could be seen as more or less a simple extension of their own business activities, especially in small start-ups seeking seed capital. Look into the background of the CEO and try to judge their approach to business – and be sure to get in touch with them with any questions. The personality of the CEO can have a profound effect on the direction of small businesses – make sure you understand what they’re like fully.

What’s the exit strategy?

No matter how good a business idea is you still need to convert that idea into a good return for you, the investor. With early stage businesses you can’t rely on being able to sell your shares to another investor for some years after the initial investment, nor can you expect to receive dividends for some time, if ever.

Check what the business’s plans are for exiting the investment. Do they expect to go public? Do they expect to find a buyer, whether a trade buyer or a financial institution? If so, what implications will that have for you? Make sure that your personal exit is planned out in your mind before you invest.

Don’t let yourself get put off by some of the difficulties associated with investing in small businesses. Crowd for Angels gives you the chance to invest in thoroughly vetted start-ups and other businesses which have serious potential for growth and profitability. Seize on the opportunity for above market average returns with these tips for small business investment.

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Risk Warning

Investing in small public listed or private companies involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Investing in debt pitches through Crowd for Angels (UK) Limited involves lending to companies and therefore your capital is at risk and interest payments are not guaranteed if the borrower defaults. Crowd for Angels is targeted exclusively at investors who are sufficiently sophisticated to understand these risks and make their own Investment Decisions. You will only be able to invest via Crowd for Angels once you are authorised. Please click here to read the full Risk Warning.

This page has been approved as a Financial Promotion by Crowd for Angels (UK) Limited (Company number: 03064807) , which is authorised and regulated by the Financial Conduct Authority (Reference number: 176508). Investments can only be made on the basis of information provided in the Pitches by the Investee Companies concerned. Crowd for Angels takes no responsibility for this Information or for any recommendations or opinions made by the Investee Companies.

Pitches may contain forward looking statements and financial forecasts or projections. Forecasts are not a reliable indicator of future performance. Crowd For Angels makes no judgement or opinion of the likelihood of targets being achieved. Investments made in companies listed on the Crowd For Angels platform are not covered by the Financial Services Compensation Scheme (FSCS).

The availability of any tax relief, including EIS and SEIS, depends on the individual circumstances of each investor and of the company concerned, and may be subject to change in the future. If you are in any doubt about the availability of any tax reliefs, or the tax treatment of your investment, you should obtain independent tax advice before proceeding with your investment.