This week’s reading in the Winning Angels – the 7 fundamentals of early stage investing by David Amis and Howard Stevenson was really interesting. Negotiating the deal is another important fundamental. As with the other fundamentals, negotiating needs to build the relationship between the entrepreneur and the investor. The terms that are established should benefit both parties.
Negotiation boils down to mutual respect. The objectives of the winning angels that choose to negotiate include the price of course, the terms, their investment, and the role they will play in the organization (Amis & Stevenson, 2001, p. 230). The objectives of the entrepreneur are building relationships, getting their investment with favorable terms, and maintaining control of the company.
A successful winning angel can choose to negotiate or not to negotiate. The angels that do negotiate have different motives. I thought that it was interesting that some angels negotiate to not only be active in their role in the investment, but to get an idea of how the entrepreneur reacts to situations. The angels that do not negotiate may not want to deal with the emotions involved so they avoid negotiations.
If the entrepreneur and the investor have honesty and integrity, I think that the relationship will be successful. It is important to have a good relationship because this will set the tone for years to come. The investor needs the entrepreneur and the entrepreneur needs the investor.
Amis, David, and Howard H. Stevenson. Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001
As I continue reading Winning Angels – the 7 fundamentals of early stage investing by David Amis and Howard Stevenson, I realize what a novice I am to investing and investments. In the last section, the book was on valuing the idea or business. This week’s reading was on structuring. The importance of structure really depends on the investor. Some investors play an active role in the structure of the deal actively leading the negotiation, some do not play an active part but just don’t invest if they don’t like the terms. On the flip side, some investors feel that the structure is irrelevant. They accept that the deal will either be a success or a failure.
There are three fundamental structures common to investing. These include: common Stock, preferred convertible with various terms, and convertible note with various terms. With each of these structures, you should look at the exit possibility, protection, and possible outcomes.
Common Stock is the easiest structure. This structure is used for family and friends. The book also says it is also used by fools. The structure allows the entrepreneur to issue stock according to the valuation agreed upon by the investor. An advantage to the use of common stock is the timeliness and the lack of additional risk. Some of the disadvantages are the possibility of loss of all your money, the entrepreneur could sell their shares to another person, or the company could completely fail leaving the investor with their shareholder’s equity position. This structure is great for the investor that is looking for easy and quick. It is suggested that the investor get the pre-emptive and tag-along rights.
Preferred Convertible is just that, preferred by some investors. This structure is not as simple as common. It requires more interaction with the entrepreneur. The preferred share structure offers more protection to the investor. The entrepreneur may expect more consideration for using this structure.
Convertible Notes with various terms are being used more often. Most of the risk is taken away with this structure. Convertible notes are debt instruments that allow the investor to turn their investment into stock. This structure can be more complicated and more time consuming.
A winning angel may use a variety of structures for different deals depending on the complexity, the amount of capital requested, the time-frame, and the trust they have in the entrepreneur. As a novice, I will continue to read Winning Angels.
Amis, David, and Howard H. Stevenson. Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.
As I continue to read Winning Angels-the 7 fundamentals of early stage investing by David Amis and Howard Stevenson, I really consider what I would look for in an investment. How do you value an investment? The value of an investment goes beyond the numbers. Many times the value of an investment is connected to the relationships that you make in a deal.
The section on valuing in this book leads off with methods of valuation. These methods help you arrive at the “numbers”. As far as which method is best, this decision is left up to the investor. The book emphasizes that an early investor should focus on companies with valuation of 5 million or less. When investing in these companies, you are more likely to earn five times your money in five years.
Out of all the methods, I like the Berkus method formula. With this method, a value is given to entrepreneur assets.
Putting the numbers aside, some of the other values of a company are the relationship with the entrepreneur, the knowledge that the investor can gain from the industry, future investments into the company, and building relationships with other entrepreneurs.
When I am buying for my business, it is sometimes hard to know how much product to invest in to sell. I have always said that I buy until it feels good. The same is true for investing. You have to feel good about the deal. Many times it just boils down to give and take with the entrepreneur. Naturally, the entrepreneur will feel that their business or product is valuable. As a business owner, I know that I would think that my business is worth more to me than anyone else. An investor has to understand that the entrepreneur does have this heart connection. The entrepreneur has to realize that the person investing and believing in their idea or business has to make money. The relationship that is made between the entrepreneur and the investor is the key to being successful.
Resources
Amis, David, and Howard H. Stevenson. Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.
Nasser, Stéphane. “Valuation For Startups – 9 Methods Explained.” Medium, The PARISOMA Review, 28 Apr. 2020, medium.com/parisoma-blog/valuation-for-startups-9-methods-explained-53771c86590e.
As I sat here watching the sunset, I completed the section on Evaluating in the book, Winning Angels. I am sure that the sun has set on many successful deals because of poor evaluating or lack of trust in the Entrepreneur, the business model, the context or the structure of the deal. As Entrepreneurs, we will be faced with making investments on opportunities that come our way. I have actually taken a personal risk philosophy test and have determined that I am a medium risk taker.
Like Winning Angels highlights, an investor has to be confident in the people you are dealing with. The people include, not only the entrepreneur, but also the team members, other investors, advisors and stakeholders. The section on sourcing also pointed out that it is important to have experienced entrepreneurs when contemplating an idea. The entrepreneurs that winning angel investors look for have knowledge of their industry, skills necessary to start a business, and goals for the company. The one factor that this book mentions that really attracts investors is the existence of an exit strategy.
One section that I found really interesting was the rejection section. As an investor, it is important to be timely with your decisions. Being of your word helps build your reputation as an investor. This reputation will win you more referrals. As an entrepreneur, you can learn from rejections. Many times you will obtain constructive criticism. Take the advice of the entrepreneur and use it to your advantage by improving your business model if necessary.
If I was evaluating myself as a potential investment, I would say that I am in the learning stage of my industry. The regulations are up in the air at this present time. My company is in the beginning stage of an industry with a huge amount of competition. As I look at the risk in the hemp industry, the return would need to be high to make this investment worthwhile.
Amis, David, and Howard H. Stevenson. Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.
Upon receiving the book Winning Angels-the 7 fundamentals of early stage investing, I was curious to how this was going to tie into the class of Entrepreneurship. The class that I am currently enrolled in is Entrepreneurial Feasibility Analysis. Life is pretty fast paced so I find myself asking how will I ever read this book. I find the book really interesting so far. I am currently reading a section on Sourcing. First, it is important to know what a winning angel is. An Angel in the context of this book is someone willing to invest and take a chance on an entrepreneurial venture. If the business or venture fails, the entrepreneur does not have to pay the funding back. In return for the investment the entrepreneur gives up some control of their company. Many angels invest in hopes of making money when the company sells or sells public stock.
The book speaks from the perspective of the investor. In the section on sourcing, the book stresses that you must know what kind of deal you want to be a part of. Having entrepreneurial experience will help you be a more successful investor according to Winning Angel(Amis 2001, pg. 58). Just for kicks I looked up winning angel sourcing for Hemp. I was not surprised that there are many angel investor sources for Cannabis and hemp. If you are wanting to be a winning angel investor, it is a good idea to concentrate on one industry. Building your expertise in the industry allows you to build relationships and knowledge. It is always a great idea to connect with the industry by attending trade shows, going to association meetings and talking to professionals in the industry. Finally, getting a referral from a successful investor is always helpful in making a successful deal. The book, Winning Angels, points out that a good referrer will know what kind of deal is right for you because they will already know your personality, objectives and interests. If you are interested in becoming an angel investor, know your industry and network with professionals that will help your make successful connections. Please check in next week as I will discuss the importance of evaluating when making your winning angel deal.
Tina Jones
ENT 640
Amis, David, and Howard H. Stevenson. Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.
With 2019 behind us, we need to decide what the plan is for 2020. Unfortunately, we do not have 20/20 vision on this. The Hemp industry is uncertain at best. So many factors are uncertain at this time. When you look at the PEST analysis, you would quickly see all factors say that Hemp might not be a good investment. The laws are uncertain at this time. Smokable Hemp bans appear to be in the horizon. The economy is in upheaval due to COVID 19. Socially, Hemp has become more accepted. Hopefully, technology will work in the Hemp industries favor. With easier testing, law enforcement could distinguish hemp from marijuana. Cheaper processing of CBD Oil might help with profit and sales of the oil. All this and still, to plant or not to plant is the question on many Hemp farmers mind.
McDonald’s celebrated the 40th anniversary of the happy meal with a series of print ads that were designed to capture the relationship between a child and the McDonald’s Happy Meal. The iconic golden arches showing the energy of the child and the red box drawing attention to it letting the child forget everything else. I think that the ad accomplishes this.
This ad was created by Flock Agency in 2019.
The target customer of this ad would be children or parents. The action that the ad wants you to take is to buy the product. If you buy this product for yourself or your child, it might take you back to being a kid. The value proposition of this ad is the feeling you might get when buying this product that is a test of time. I know that I eat Happy Meals all the time. They take you back to your younger days. Many people will see this ad and think of a timeless classic.
AD #2
This is a NIKE ad for print. This ad was published in March 2020. This ad was designed with Covid-19 in mind. This is an ad of encouragement. In a time when many young people are practicing social distancing confined to their home, this ad gives them promise that this is for a good cause, the World.
The target for this ad would be active people, young or old. Nike has always been a company of compassion for causes. The cause that they are promoting is staying inside. By staying away from the public you are protecting the spread of germs. This ad would be hard to measure. I do think that the value proposition is building loyalty. Being loyal to the brand of Nike because Nike cares about the world.
AD #3
In the Air
This ad was created by interTrend Communications in 2017.
The ad is for the 2017 RAV4. This ad cleverly promotes this car as being fun and adventurous. I think that it is targeting consumers that like fun, snazzy styling and are safety conscious. The ad captures your attention with its pretty colors. The hope is that you would read the fine print which talks about its spaciousness and safety. The value added to the product with this commercial is a bit of adventure with every purchase. This ad could be measured by looking at sales made during the promotion of this ad.
The ad won the Creative Campaign of the Year award.
Ad #4
Unsuspecting Prey
This ad was for AARP. This ad is designed to bring awareness to the fact that there are scams out there. The target market for this ad would be the people that read the AARP magazine and other print in the senior age bracket. When we look at the picture, we would instantly think of a senior citizen. The title lets us know without reading another word that the ad is hopefully going to tell us how to avoid being unsuspecting prey. I think that it is interesting that the exact ad was done in two different languages. Many ads that AARP serve as public service announcements. The value proposition of these ads is protection. I get the AARP magazine and think that the value of their ads go way beyond the monetary value.
Ad #5
Heinz Hot Ketchup
This ad is for Heinz Hot Ketchup. The ad is simple, but the message is clear. This ketchup is hot. You can see the burnt fry with smoke going up. The label is in the bottom corner with the logo staying true to its branding. Heinz has been around so long that it has instant recognition. This ad would catch the attention of the target market that likes a little pizazz in their food. This ketchup will make anything a little hotter. The value proposition is just that…..Make it hot. I love a little hot sauce on my fries. This just saves you from having to mix the hot sauce in your ketchup. I liked this ad because of its simplicity.
This ad was designed to let the consumers know that the names were back on the Coke bottles. There were over 1,000 names with a song written about each of them. Coke paid songwriters to create these songs for every name on their bottles. I found the Edward song which was very catchy. This ad won at every major award show.
The objective of this ad was a new way to let the consumer know that the names were on the back of the bottles and to encourage consumption over the summer. Will Benham was the copywriter and Creative Director for this undertaking which was the idea of Sherman Winfield and James Beikmonhamadi. This ad was not only successful in selling the product but spreading the word about Coke on social media.
Millennial consumers (1980-2000) were targeted by this name campaign. The thought was that when you pass by a Coke product and see a familiar name you would be more likely to buy it and even share it with a friend. Personalization and customization appeal to the millennial consumer.
This ad was designed to create the action of buying the product and even sharing your song or a picture of the product on social media. They created “your” Coke. They even created a website that you can get personalization done for yourself or a wedding.
I think the value proposition of this commercial is the special feeling that you get when you see something personal to you.
Multicultural Excellence Award/African American Category
Proctor & Gamble introduced the My Black is Beautiful is a series of TV ads created by BBDO New York to show conversations that parents have with their children about the prejudices and bias that may be faced in life. This ad evokes the emotional response that we all feel if we have been a victim of prejudice.
The ad spoke volumes in regards to Proctor and Gamble’s feelings on prejudice and bias. While the ad does not feature a product, it features a feeling of acceptance. I feel that the ad generates awareness of the wholeness of the brand. A brand that accepts all people. The brand wants to encourage conversations between people of all backgrounds and lead to positive change.
You may think the target market for this ad is black families. I think the target market goes deeper than this. This ad impacts all people that have experienced prejudice. I think we all have felt bias at some point in our life. This ad speaks to us. You are the best, beautiful person that there is.
The action this ad should evoke is talking about how you feel. Have serious conversations with others letting them know its OK to be you. “Be yourself; everyone else is taken”, a quote from Oscar Wilde sums it up. We are all unique and beautiful.
I think that the product gains its value proposition from its sincere sentiment. This ad definitely creates brand awareness. I would be tempted to use Proctor & Gramble products just by knowing how they feel about people.
This ad is a musical rendition slamming their competition. This ad is capitalizing on social media. The ad was definitely original. The mix-tape is a rap referring to some of the negative things about their competition. This ad is targeting Millenials as the lyrics are hip with current slang. Being a generation X, this ad did not appeal to me. I actually thought it was obnoxious. I think the objective of this ad is awareness of the product. The ad may have some responding on social media and sharing their interest in the product. As far as the value proposition, the ad would make you think that possibly Wendys is better than McDonald’s or Burger King. this ad
This ad was very inspirational. The woman featured in the ad was in pain. The journey followed her through overcoming pain and having a life. Motrin was not mentioned in the ad until the end. The ad held your attention until the end so you were able to see that Motrin helped this woman overcome pain. The #WomanInProgress Motrin is featured at the end of the commercial.
The object of this ad was to let people know that pain does not define you. I think that they created this ad so that you would go out and purchase Motrin. I think that is could be measured by the sales during this ad. They are targeting people in pain. This ad would touch anyone that’s life has been impacted by pain. The value you that this ad gives to the product goes beyond money. This ad will evoke the need for a quality life therefore I think people will go out and purchase this product.
This ad is about Goya Mojo criollo marinate. This ad is about a marinate with a lime taste for all kinds of meat. The ad is bringing awareness of the product to the public. The marinate may be traditionally used by the Hispanic culture but the ad features all nationalities. The ad quickly answers the question, will the kids like it? The target market would be anyone who has not heard of this, but I really think that this ad is about targeting families with kids.
The ad is designed for convincing you to add it to the grocery list and try it. I think that the value proposition is the unique flavor this 30-second ad describes. A quick little advice from the griller on how to use it only tempts us to go get some to try.
Understanding Michael Porter The Essential Guide to Competition and Strategy
This week’s reading was about competitive advantage and profit and loss. I have always viewed competitive advantage as being what you or your company did better than everyone else that set you apart. According to the book, it is about creating superior value. It’s about operating at a lower cost or demanding a higher price to demand the most profit.
When trying to determine or measure competitive advantage you must compare it to like companies within the same industry. Compare companies that face the same five forces in the same industry. To truly understand the competitive advantage you must understand the activities that your company performs. These activities include producing, designing, selling and delivering. These are all part of the value chain. The value chain is how you create value in your product from start to customer or consumer. You look at each step in the value chain as adding value to the final product. The way your company looks at these steps is what can set you apart from your competitors. You may be able to perform a step the same as the competitor at a cheaper price or do the step better at the same price. Porter refers to performing a task better than your rivals operational effectiveness.
The company’s value chain is all of its value-creating and cost-generating activities. These activities are the basic units of competitive advantage. As we look at our own business, it is important to examine all the activities and possibly do them differently than our rivals, do them cheaper than our rivals, demand a higher price than our rivals, and be unique.
Magretta, J. (2012). Understanding Michael Porter: the essential guide to competition and strategy. Boston, Mass: Harvard Business Review Press.
Understanding Michael Porter The Essential Guide to Competition and Strategy
The main take away that I have from chapter one of this book is that strategic competition means choosing a path that is different from the others. Instead of trying to be the best, companies should be competing to be unique. Uniqueness in the value you create for your business can give you a competitive edge. According to Michael Porter, the right mindset for the competition is to earn higher returns, profits, meet the diverse needs of your customers and compete by innovation.
Porter’s five forces:
Rivalry among existing competitors
The threat of new entrants
Bargaining power of buyers
The threat of substitute products or services
Bargaining power of suppliers
These five forces tell you immediately how the industry works and how it creates and shares values. It explains the industry’s profitability. I find this true in my research of the hemp industry. As I work on my situational analysis, I find that Porter’s five forces will help me realize the profit potential in this industry. As we all know, profit is important.
Magretta, J. (2012). Understanding Michael Porter: the essential guide to competition and strategy. Boston, Mass: Harvard Business Review Press.
