Investing in Early Stage Companies

By Dr. Johnny Hon, Chairman – The Global Group.

 

The most innovative and pioneering businesses are rarely created overnight – but great ideas can often come to you in the early hours. One’s best ideas are organic and draw their inspiration from a variety of sources. And it’s at that ‘Eureka moment’, when a new business idea suddenly seems to miraculously take shape, that budding entrepreneurs might best seek out an angel investor, like myself.

 

Angel investors can take a number of forms, from a family member, to a wealthy individual who is looking for the next big thing to get involved in, or a young protégé to take under his wing. However, regardless of your background, your role as an angel investor needs to be more than just a source of finance for a young hopeful. You should also become a mentor to them, sharing your own experience, and perhaps most importantly providing access to vital connections that can help propel their venture to the next stage.

 

It’s also important to note that when supporting a new business, you’re also investing in the person behind it. It is vital therefore to understand their emotional and psychological intelligence in order to help them become successful. Personally, I draw on my academic studies, and specifically the Ph.D. in Psychiatry that I completed at Cambridge University. It has enabled me to gain a far deeper insight into what makes people tick and this, in turn, enhances the support that I am able to give them.

 

That is why I am equally, if not more, interested in the personality of the entrepreneur as I am in the business idea itself. If you invest in the right person with the right attitude, even if their business plan has room for improvement, or doesn’t necessarily work the first-time round, you can still work together to produce something great for the long-term.

 

This approach also impacts on how I finance an entrepreneur. When you provide a young business with too much funding at the initial stage, this can often lead to careless business decisions and a lack of sensitivity to the demands of the market. This can be disastrous, as it heightens the risk of exhausting funds too quickly, for example by hiring at an unsustainable rate or through unnecessary spending on things like office refurbishment or advertising. Therefore, it’s better to not over-finance, as a hungry company tends to make better decisions.

 

What a lot of would-be entrepreneurs also don’t realise is that, on average, it can take at least three years for a new business to break even and start turning a profit – and therefore for backers to start seeing the fruits of their investment. Many entrepreneurs are not prepared for this, and so abandon their businesses at the first hurdle. This is another reason why it is so important for angel investors, such as myself, to explain the process and help guide them through the different stages until the very end.

 

Remaining hands on and involved in all aspects of the business when you are investing in early-stage companies is crucial.  Even more than 20 years after founding the Global Group, I am still very much involved in the everyday running of my company. Continuously contributing my unique experiences, knowledge and ideas helps ensure its success.

 

When it comes to angel investing, there is much that Hong Kong still tends not to appreciate. However, it remains the perfect place to build a bridge between East and West. For this reason, I make sure to work with entrepreneurs from all over the world, helping international businesses gain a foothold in China, as well as enabling Chinese businesses to expand globally. Through my global connections, I have developed a strong reputation as an angel investor. The road to business success is never linear, but looking back on 20 years in the industry, my greatest piece of advice is to meticulously build a reputable name as a knowledgeable, understanding and trustworthy investor.  In turn, partnering with the builders of tomorrow can bring both great satisfaction and great rewards.