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Is Proximity Or Industry Experience Better For Your Next Private Equity Investment

Is Proximity Or Industry Experience Better For Your Next Private Equity Investment

Picking your next angel investment is one that will no doubt consume large amounts of an investor’s time. Having a clear guideline or decision framework is both valuable in saving you time but also in increasing your overall rate of return. There used to be an old adage that you shouldn’t invest in a business that is more than 100 miles away so that you can always keep an eye on your investment. While this was certainly true over the past 50 years, it is more and more becoming an outdated and hazardous train of thought.

If your background is in technology, do not invest in some new restaurant that is a block away from your home over a software company whose technology you know intimately but that is based on the other side of the country. What you will lose in plane tickets, long distance phone bills, or online meeting charges, you will most certainly gain through your expertise, guidance, and knowledge. If you are not familiar with a business’ industry or sector, no amount of proximity is going to help you decide if it is a money-maker or more importantly help that business leverage off of your experience once you have committed your capital.

What you bring to the table as an accredited investor is not just money, contacts, and your resume. Your bring all of the knowledge, experience, and exposure from within your industry. With that in mind, invest in businesses which you understand well and have been exposed to over the years. Knowing the key players and understanding the business model of a particular industry is more than half the battle.