Startup founders should be prepared to put their money where their mouths are if they want to secure investment from business angels, according to research from University of Edinburgh Business School and the University of Glasgow’s Adam Smith Business School.
In a study of more than 100 UK established investors – often known as business angels – 87% said they would find it too risky to back an entrepreneur who had not made a significant financial investment in their own venture.
More than two-thirds (70%) thought founders motivated by status were more risky. However, 62% said entrepreneurs looking to become wealthy were a safe bet.
Nearly all of the individual investors believed founders with demonstrable leadership skills (97%) and familiarity with the market (96%) reduced investment risk. 94% said entrepreneurs with the energy to make a sustained effort were also less risky.
When it comes to carrying out due diligence on an investment opportunity, old adages – back the entrepreneur not the idea and run the numbers – ring true. 90% of business angels said interviewing founders was important, while 87% felt cash flow to be key.
Significantly, just 52% said detailed product information was vital in deciding whether to finance a venture.