Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

December 17, 2013

Angel Investing or Buying A Business?

By Joseph Eneldas


As the year 2013 draws to an end, the recent article by the Wall Street “What You Need To Know To Become An Angel Investor” (December 2, 2013) has caught our attention.

“This question is particularly interesting as we consistently receive related questions by investors across all of our five regions”, says Achim Neumann, President, A Neumann & Associates, LLC, a New Jersey based regional merger & acquisition and business brokerage and firm.  “In a nutshell, there are a lot of investment funds with many investors seeking viable business propositions, but there are still too few viable businesses available for sale.”

This continues a trend from the recession – as counter intuitive as it was then  – the quantity of investors still outnumber the sellers of viable businesses. And the quintessential question remains for the savvy investor – where to place his or her funds in order to obtain a good, and more importantly, safe return?

One of the key issues correctly identified in the article is the vastly increased number of channels to invest, partially due to relaxed government controls. For example, crowd funding, online investment syndicates, online web platforms, and others – all provide opportunities for investors to seek the next “Facebook” or “Twitter”. However, the ease of reaching out to, and participating in, these opportunities often neglects the challenges that angel investing brings.

For example, shares may not be liquid, meaning an investment can very often not be sold for many years, or worse, an equity investment might require additional capital input by the angel investor if the initial business plan does not  materialize as planned.  In other words, a clearly defined “exit” strategy is not always possible. Further, a mechanism to bind the founder(s) has to be established, because the angel investor typically wants to allocate a significant time commitment to provide his industry specific hands-on experience in guiding the business out of the initial stages.

Further, any angel investment will require a thorough due diligence to identify flaws in the business plan – more so than buying an ongoing business. And finally, there is the value determination of the initial investment versus the share percentage to be obtained.

Consequently, many of angel investor challenges are similar to purchasing an ongoing, well-established mid-sized business: due diligence, valuation, “stand-by” capital and investor time allocation are quite comparable. However, whereas the angel investor is very often not the individual making operational decisions on a day-to-day basis, the mid-sized business buyer/ owner is his “own captain”. Here, the business owner has true hands-on responsibility, including the thrill of being rewarded for a flourishing business.

And whereas angel investing certainly CAN provide considerable more upside, it often does not. “There are many horror stories of such investments where the investor was misled, the business plan was flawed, or the founding partner(s) left with significant disagreements – ultimately rendering the initial investment a loss” says Gary Herviou, Managing Director, Central NJ.  Here again, a buyer of a mid-sized company does not have to deal with such issues, but can rely on her/himself, plus, the buyer usually can rely on a valuation based on historic, well-established cash flows.

“We have numerous ground floor investments and turn-around situations available in our firm’s sell-side portfolio” says Frank Arcoleo, Managing Director, Central Pennsylvania,  “however, we always caution investors to thoroughly weight the purchase of a cash flow generating business versus a new startup. It takes a different mentality (and a different stomach to absorb).”

In sum, whereas angel investing is often perceived as vehicle to beat “returns in the market” with an “easy” investment in a start-up business, the reality is that there are many down falls. Ultimately, the prudent angel investor should undergo most of the same pre-investment steps as a typical business buyer, a major difference being that  the business buyer will actually “drive the bus” later on and obtain the rewards all for himself.

Within this context, our entire team of professionals wishes everybody Happy Holidays and all the right investment decisions for 2014!

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or

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Client Testimonials

“I had been in touch with Karin and Gary from A Neumann & Associates regarding some opportunities and was looking forward to meeting with them. Hence, when they organized a seminar in Princeton, NJ, I was quick to sign up. The seminar was very informative as the team walked the attendees through various scenarios and referenced real life buying/selling situations they had been through. The sessions by Gary, Karin and Achim were crisp and focused and brought clarity to potential seller and buyers. I strongly recommend the team and look forward to continue working with them.”

Gaurav Tyagi

“Thank you for your Event on "How to value, Sell, and Buy A Business for Maximum Profit" and the insight into ANA’s approach on what is involved in the Business Exit for sellers. Garys Hervieiou's "Business Valuation", Achim's "Deal structure" presentation and Karin’s "Preparing the Package" are real street knowledge shared. They answered attendees questions which makes it more interesting for learning from others. Great for small businesses like us. The presentations were totally worth our time and travel for the event to Princeton, NJ from Rockville MD. Ravi Bhutani, President, CIPS”

Ravi Bhutani

“Gary, this is to thank you for an excellent job done in selling our business. We could never have done it without your professional expertise, dedication and time put in without reservation to make it happen. We will gladly and highly recommend you to anybody in our position.  It was a pleasure to work with you.”

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Eric H., Investor

“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

Double Diamond

“Used A Neumann & Associates to sale my business. could not imagine having done it with out the patience and experience Gary provided. Thanks Gary,”

Dennis Frazier

“Working with Marc and his company was a pleasure. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. Marc handled most of the interaction and he has one of the greatest demeanors. Again, it was a pleasure working with him and his firm.”

Douglas DiCeglio

“I recently completed an acquisition using A Neumann & Associates. Tony Valentino was very helpful and accessible during the entire process. They do a thorough job vetting both parties and got us to the finish line.”

Srini Mudambi

“Claus out of Florida helped us with the sale of our business. We had never done anything like this and him and his team walked us through the process from start to finish. We had some challenges through the process and Claus continued to show up even in the difficult conversations.”

Colby Harris, Co-Owner, Del Mar Designs

“Claus Madsen thoroughly helped us with selling our company. From the 1st introductory meeting explaining to us what was possible, to providing us with resources to assist with the sale. Claus was invaluable throughout the whole sales process. Claus was with us every step of the journey and always made himself available for any questions or issues that came up along the way. If you are interested in selling your business, I encourage you to reach out to Claus and the ANA team so that they can let you know what’s achievable. These guys will make it happen!”

Ron Harris, Co-Owner and Vice President, Del Mar Designs
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