Often I hear angel investors mention an investment they have made in a company that they feel may not be the best but is either local, or from an acquaintance or friend or you know has the ‘right cause’. Talk about the ROI from these investments and the answer is typically either ‘You know I needed to do this’ or ‘Could not say no to such a close friend’. On the other hand I also have come across angel investors who take very close look at the product, technology and viability of the business plan presented and leave no stone unturned. They want to know what would sell 5 years from now, as those are the companies they want to invest in.
This I call the difference between charity and sustainability in angel investments. The latter kind of angel investor might seem ruthless but in reality, he is doing micro and macro economics a whole lot of good compared to the first kind of friendly investor. By financing the healthiest and well placed businesses he is making sure that the company survives in the long term and generates more sustainable jobs than perhaps a half baked business idea. For what is the value of $100,000 that has been invested in a business that has 5 employees today and 5% chance of survival? On the other hand, consider the value of $100,000 invested in a business that has 3 employees but has a 50% chance of growing into a sustainable business with about 100 employees in the next 5 years. Should I invest in the first business that is owned by my friends or family to become the fool myself?
Rachna Dayal : Investment 