Advice From An Angel Investor

How To Avoid Sharks And Find Good People To Work With

Coming from a background in investment banking, the idea of raising money and investing in assets wasn’t a foreign concept to me. If anything, it gave me an advantage when I entered the property industry. One that has allowed me to invest in others and make a profit from deals, without having hands-on involvement in them. Because, I’ll be honest, despite being involved in more than 40 deals, I’m under no illusion that I’d be terrible at running my own projects.

My experience of investing in others and my content around creating risk frameworks, landed me a position as the first female angel on Sky TV’s Property Elevator show and secured me a spot on the popular investment show Venture Visionaries. Now, I’m involved in a range of big projects across Europe.

But, despite my years of experience in the industry and an extensive background in investment, I’m still shocked by the flippancy in which people treat borrowing money, or, if you want to use a term I REALLY hate, OPM (using ‘other people’s money’). 

I’ve lost money by investing in others and I’ve seen countless others fall victim themselves. While seeing hundreds of thousands of pounds lost, I have also witnessed something far more devastating: The loss of faith in humanity when someone is swindled or let down by a charlatan, or by someone who was overconfident in their abilities.

In this article, I want to show you how to avoid sharks, what you should look for before investing in, or joint venturing with someone and share some tips on what angels look for in people and projects, that will help you become more investable when you come to raise finance yourself.

It’s Not A Fiver You Found On The Floor

I was an investment banker before the financial crash in 2008. It was a gruelling job, where 15-hour workdays were the standard and I had to literally run to and from the loo, to minimise time away from my desk!

Investment banking is a high-pressure job where you’re dealing with money. Lots of money. It can involve mergers and acquisitions, cross-border trade and the raising of capital. It’s high-pressured, so high pressure that it led me to develop severe burnout and eventually leave the sector altogether.

Why is it like this? Because you’re dealing with other people’s money and that’s serious. So, you can imagine my shock when I entered the property industry (a side investment that ran alongside my career at first) and saw the way that other people’s money was talked about.

I’m starting the article with this point because, if you have any hope of wanting to raise finance, then you need to treat other people’s money like it’s sacred. Not only is it best practice, but holding this mindset will make you far more attractive to angel investors!

On the other hand, if you’re looking to invest in others, then this is one of the key indicators to look out for. Does borrowing money stress the other person? Because it should! It’s wise to invest in people who respect your capital. That’s one of the best pieces of advice I can give you.

‘Other people’s money’ makes it sound like you’ve found a fiver on the floor. If you know anyone who speaks about it with such flippancy, then run a mile before investing in them. I would. 

How To Find Out If Someone Is Trustworthy

These days, I focus on short-term lending, like loans and bridging finance. As you can imagine, being known as an angel investor, I get inundated with people looking to borrow money. While it works with some people, I’m not the type to invest in a stranger, who’s decided to rock up in my LinkedIn inbox and send me a message.

Realistically, I want to have a relationship with someone that spans a number of years before I invest in their projects. At a minimum, I want to have watched them and known them for at least a year before I do anything.

The problem is, we’re in an industry where people have a penchant for overpromising and then massively underdelivering. Talk is one thing. Action is another and you can’t always trust what people say.

The only way that you can assess if someone is trustworthy, is by seeing how they act and the longer the timeframe that you analyse that over, the more certain you can be about who they really are. Consistency reveals all and this, combined with talking to people they have worked with in the past, will give you an idea as to whether someone can be trusted, I’m the antithesis of ‘get rich quick’. I believe in getting rich safely and protecting your money in the meantime.

I also get people to do a wealth dynamics test before we work together. Then, I share my profile with them. This way, we both get an idea of how the other person works and we know what to (and what not to) expect from each other.

What I Look For When ‘Watching’ Someone

You see a lot of investors and marketers swearing that the way to raise finance is through social media. To a degree, I disagree.

If I see a ‘too polished’ social media presence, then it makes me wonder who’s going to be running my projects. If it’s a one-man band doing lives and reels every day, then I question how they have time to be on-site and do the important stuff.

Don’t get me wrong, brand building is incredibly important. I only worry when it looks like an entire team or business is focused on this over delivering results.

I believe that running a business and running a project are two totally different things and as a property professional, you need to be good at both.

For example, I knew someone who was brilliant at finding deals, but they were terrible at managing cash flow. You can’t be good at everything and if cash flow isn’t your strength, I’d recommend hiring a chief financial officer (CFO).

I encouraged this person to get a CFO on board, but they were having none of it. Everything came to a head towards Christmas, when they asked me for money to pay their staff. I might be a hard-nosed investor, but even I couldn’t sleep at night knowing their staff wouldn’t be paid.

I transferred the money on the understanding that it be repaid in two weeks. Due to a stroke of luck, the payment was frozen by the bank, because they had given me their spouse’s personal account details! I’ve never been more thankful for a frozen bank account in my life!

Naturally, I hit the roof when I discovered they asked me to transfer the money to a personal account and I refused to send it again. Within just one month, this business went under. Had luck not sided with me that day, my money would have sunk with it, as it did with a lot of other not-so-fortunate investors.

I wish situations like this were uncommon, but they’re not and I’ve seen it happen to me and countless others. It does not just rob you of your capital. It takes your faith in humanity.

It’s a huge leap of faith to invest in someone and I always say you should treat borrowed money like you owe it to the mafia! I want to see people who view it this way. I want to see people who have a track record of working with others and delivering on promises.

What Do I Look For Before Investing In Someone’s Deal?

Contingency is the most important thing in the world to me. I can’t say it enough. Contingency, contingency, contingency!

You need to have a percentage added to your costs for unexpected issues or delays, or things just costing more than you anticipated.

If I’m being generous, I’d say you need to have at least a 10% contingency on top of your predicted costs. I’ve seen people go with 5%, which is laughable. It’s rare for a project to stay on budget, I can only think of one that I’ve personally been involved in.

This can be different if you have a ‘cookie cutter’ approach to your projects, where you have consistently delivered the same thing over and over again. But still, it’s a risk.

Pre-covid you could maybe get away with a lower contingency, but the pandemic showed us all that freak events can soon wipe out even the best laid of plans.

Freak events seem to be happening more and more lately. Are these really freak things that we shouldn’t account for in our costs?

New build developments are the riskiest of all because you don’t know what you’ll find underground. If you find something unexpected and your whole site is on hold for a year while English Heritage and everyone else looks at it, imagine what a year’s worth of finance, on an inactive site, costs? Ouch!

You can’t exactly predict everything that will happen, but a healthy contingency will protect you from the unexpected. 

Putting Some Skin In The Game

For me, sticking money into a deal while someone else invests their time does not work. If people have nothing to lose, they can just walk away when things get sticky. I’ve helped so many victims go after people who have taken this approach, walking away when a project got tough, without losing a single penny of their own money. It’s heart-breaking.

How much skin you should put in the game varies from person to person. To one person, £1,000 is an awful lot of money, and to another, it’s only the prospect of losing £10,000, or even £100,000, when they feel uncomfortable.

I don’t want someone to invest their life savings with me. But what I do want is for them to put enough money into a deal that it will hurt them if they lose it. This way, if the going gets tough, they’re incentivised to work with me to get things back on track and not just run for the hills!

My Thoughts On Personal Guarantees

I used to say personal guarantees (PGs) weren’t worth the paper they were written on. That’s because there is no definitive register of them. You don’t know how many PGs someone has outstanding. They could have twenty PGs, to twenty different people, all on the same asset and you could be one of them. If this happens, good luck. I’m all about asset-backed investments. At least that way I have a better chance at recouping my money if a deal goes wrong.

I’ve also seen incidents where the asset is in the spouse’s name, or they file for divorce, so all assets are frozen. At this point, there is no liquid asset you can pursue.

These days, I’m more open to them, but that’s only because I’ve been stung too many times. When investors come to me for advice on asking for a PG from someone, I also ask them If they’d be prepared to make that person homeless, especially if they have a family and children. That’s the cold reality of pursuing a PG and not everyone has it in them. Likewise, if you agree to one, then know that this is potentially what you’re signing up for and not everyone has as much empathy as me in these matters.

Do They Need Experience To Be Investible?

I don’t have time for many property trainers. The ones I really don’t have time for are the ones who tell you to stand up and look around the room because your next joint venture partner might be in there with you.

No, no, no! Would you marry anyone in that room after you’ve only just met them? Probably not! 

It’s much wiser to get to know people over a decent period of time before you jump into business with them. With time, it becomes more obvious who they really are. Hopefully, they are who they say they are. But again, consistency will be the secret that reveals all.

Before investing in someone, I look at the team around them. And it’s true, having a strong team does make you more investible. However, I don’t think this can be a complete replacement for personal experience (something I’ll touch on shortly).

Look at it from an angel investor’s perspective. Let’s say I have a choice of four people with whom I can invest: Person A has been developing property for 30 years. Person B I've known for three3 years and person C is well-known and has won numerous awards.

Then there is someone (person D) with no money, credibility or experience. They might have used their credit card to pay for a weekend training course. In my shoes, who do you invest in? Because let’s face it, the last one is unlikely.

Don’t get me wrong, I have invested in someone who was at the very start of their journey, but so was I. I knew their mentor though and he was someone I respected too. I knew that with him onboard, we had someone to help us. It would be expensive and it would be messy, but at least we would learn together.

What If They Don’t Have Credibility (Yet)?

I don’t want you to think that if you don’t have experience, it’s game over. Everyone starts somewhere.

So, what can you do if you’re new, or newish to property investment and want to raise some angel investment for deals? My advice for them is to borrow credibility from other areas of their life.

We all have a track record somewhere, particularly in our careers or established relationships. 

Here are a few things I look for in someone’s track record, if they don’t have as much experience in the world of property:

• Previous experience running or growing a profitable business.
• Long-term harmonious relationships in other areas of your life.
• Existing relationships with other credible people, who can personally vouch for you.
• A strong professional history.
• Working with others in a professional manner.

Learn More About All Things Property, Business And Investing

Outside of being an angel investor, I’m often travelling to and from my home in Malta as I also judge for some pretty cool industry awards, including the HMO Awards & Summit, the Blue Bricks Property Awards, and the Women in Construction Awards, a visionary initiative, spearheaded by none other than Michaela Wain, of The Apprentice fame.

By Helen Chorley

From the author:

"Outside of being an angel investor, I’m also a judge for some pretty cool industry awards, including the HMO Awards, Blue Bricks Property Awards, and the Women in Construction Awards.

If you're interested in learning a bit more about what makes me tick, feel free to check out my website using the links below."

Website: https://www.helenchorley.co.uk

LinkedIn: https://www.linkedin.com/in/helen-chorley/

Instagram: https://www.instagram.com/helenchorleyinvestor

CREDITS

Content supplied by Sam Cooke at Blue Brick magazine. This version contains minor text changes from the original article.

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