November 12, 2012

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Scorecards for Business Angels?

Watching Dragons' Den, it gave me a thought about investors.

Now, I'm not a business expert - although I do run a business - but it occurs to me that when an investment opportunity comes up that more thasn one Dragon seems interested in, it can come down as much to who that Dragon is and what they could do for that business beyond giving them money as it does to the money itself. Indeed, in some cases, the money seems secondary.

What a lot of businesses seem to be seeking is the experience, the expertise and the contacts of the Dragons. The money they're asking for is often in amounts they could probably borrow without giving away any of their business.

In the spirit of a more scientific approach, it struck me that it could be quite easy to gauge the ptential value-add of an investor by building a picture of their track record, built on the subsequent performance of businesses they invest in, as well as the performance of businesses they turn down.

For example, in Dragons' Den, someone could back through the years and build a financial picture of businesses Dragon's made offers to, businesses they invested in, and businesses they didn't think they'd get a return from.

This could be broken down by Dragon, so we could see, for example, what the average effect of an investment from Deborah Meaden is vs. an investment from Peter Jones. They could also break it down by sector, so we could see what the effect of Peter Jones investing in your ruggedized touchpad computer might be vs. what it might be if Deborah invested.

It might also be very interesting to see what effect just giving businesses useful contacts might be, without any investment or guidance from a Dragon.

Maybe it's all about "who you know". Who can say?

The benefit to investors - at least, too good investors who tend to make good calls and have a more positive impact on their investments - would be that, with a proven track record, you might be able to ask for a bigger slice of a business based on expectations of higher performance.

Perhaps something like this already exists. But I suspect the world of business angels is so secretive that there probably isn't. I've never come across one.

The good news is anybody who wanted to create something like this could use publicly available data for most of it (apart from knowing what businesses they turned down, of course), so it wouldn't require the permission of investors or the businesses they invest in.

Posted 8 years, 3 months ago on November 12, 2012