The economies around the globe tend to be more competitive than ever, running neck-and-neck with each other, and currently, Asia's economy is leading the way. This economic strength is, partly, related to the convenience globalisation has lent to setting up companies: a company can also enjoy global reach almost in the get-go nowadays, whereas previously it might take decades to enjoy that level of success, if at all. Wealth managers get the chance to find yourself in the thriving business community, however the rigidity of their working boundaries are preventing it. Angel investment experts Zsolt Katona, Peter Cowley and Paul Doaney compare the roles of wealth managers and angels, and discuss whether one can leap in to the other's arena.
Angels and Wealth Managers: The Similarities & Differences
Angel investors and wealth managers may put money into businesses, but this is really where their similarities end. First let's consider what each does inside their role. Angels are almost exclusively entrepreneurs themselves, and will have earned their very own money. They will also provide plans to continue in business for that long-term, with a view for you to get out and giving help those who are where they once were. Because of the serial nature of the work, angels hope to make investments which will bring them money back, to enable them to recycle that cash into other startups. The seriousness of the risk mounted on their investments is really that angels is only going to invest in people they really have confidence in.
On the flip side from the coin we've wealth managers, who are simply being paid by someone else to do a job. They're charged with overseeing the estates of high-value families and people, and are necessary to take small fractions of those estates and invest them in deals that are prone to assist the fund grow. The cash they invest isn't their own, and so long because they minimise risk and find out some return, their job is done. They're more likely to make a large amount of small investments than the usual few large ones.
The differences between what angels and wealth managers do however, runs much deeper. While their histories and everyday operations are different, so are their priorities and decision-making techniques. As serial entrepreneurs, angels look to build a good investment portfolio, and so will frequently undertake many short-term projects or move from someone to another. Because of this, a clear exit strategy is always at the forefront of their plan, so that they can be as empowered as possible to plan their next moves. The exit strategy is necessary to angels, if they fail to make their cash back, it might jeopardise their future as an investor.
Wealth management is a far long term affair, and simply looks to supplement a previously healthy family estate. Managers themselves don't have any curiosity about becoming the next business moghul or making their millions, which is why exit strategies often fly under their radars. In addition to this, they are more in the practice of investing small amounts, to be able to minimise any losses which come their way.
Differing Investment Priorities
The ways that wealth managers and private investors approach investment tends to differ due to their contrasting core ideas. Wealth managers are playing with other people's money – and very wealthy people at that – and thus don't have any emotional attachment into it, and don't really mind making the odd loss every now and then. As long as they make more gains than they do losses, the family estate continues to be secure and they have done their job.
Having worked tirelessly to earn their money themselves, angels are naturally far more attached to the fruits of the labour, and when they will give some of it away, they would like to make sure it is for the right reason. In the end – lack of investment could prove to become a stumbling block in their business careers, and also the downfall of the success. This is why angels give a lot of thought not just to what they're purchasing but who. It's a highly emotional decision, in which promising character could trump inconsistencies running a business plans, so feeling an individual affinity to some startup is an important factor.
Dealing with Failure
It is quite common for entrepreneurs to fear the idea of failing or taking a loss, as it can very abruptly put a stop to their dreams and everything they've helped. As experienced entrepreneurs however, angels appreciate this well, and in some cases, believe that failure can be a motivating factor. As long as they see progress in the time since the failure, and believe that the entrepreneur has had that experience and made something out of it, an angel is likely to see merit of already tried without success. After all, having tried and failed creates more experience than never having tried at all. Failure is not always viewed in the same way by Wealth Managers, who see it more a danger factor and something to prevent.
This can instruct challenges when attempting to introduce angel investment opportunities to wealth managers, who may still believe that it is best to influence clear, than risk a potential investment loss. You have the view that companies seeking second or third rounds of funding are potentially more attractive, because of the existing confidence shown by investors within the initial funding rounds, however for most wealth managers, this still isn't enough to sway them into investing territory.