What To Expect From Your Angel Investors

This is a guest post by Sammy Abdullah, cofounder of the Dallas Angel Network.

Every time I first meet with an entrepreneur, at some point I’ll hear a permutation of the following sentence: “what we’re looking for are strategic angels that can bring real expertise and add value beyond just writing a check.” In a perfect world, every angel would give great advice, make that critical introduction to the next big customer, and do the company’s accounting gratis.

Unfortunately, most entrepreneurs won’t have the luxury of being so selective with whose money to accept, so it’s important to understand the kind of angel the entrepreneur and company are about to marry. In some cases, an entrepreneur may actually wish, and even beg for a silent, hands-off angel.

Angels come in all shapes and sizes, the most elusive of which is the investor that can actually be a strategic benefit to the company. This investor is happy to spend time with the entrepreneur, provides great feedback, helps to refine the vision, and overall is a joy to partner with. This type of investor is an exceptional and rare individual, and if an entrepreneur ends up with ten investors, even one of which is of this ilk, the entrepreneur should consider herself to be very fortunate.

The more common variety of angel is one who is busy with other pursuits and may even have a job himself. This angel is typically savvy and seasoned, but just doesn’t have the time or the inclination to help the entrepreneur even if he can. This type of investor is what we would refer to as a silent investor, and frankly, he’s not all that bad. This type of angel lets you run the business with autonomy and does not bog you down with lots of bad questions and cumbersome data requests. As an entrepreneur becomes busier and busier, he will come to appreciate this type of investor more, especially after a few times dealing with the third variety of angel described below.

The last and least desirable angel of the bunch is every bit as vocal and participatory as the angel that is of great strategic benefit; however the key difference is this angel is more of a nuisance and in a worst case, can be a tremendous distraction. This angel is typically more controlling and has probably never had to deal with a difficult investment because your company is the first he’s invested in.

As such, he’s hand-on but in all the wrong ways. He refers opportunities to the entrepreneur which everyone knows will go nowhere, but that one feels obligated to spend time on because they want to show their investor they’re responsive. He asks lots of questions, and while there’s nothing wrong with questions, his usually aren’t very good and have a sporadic, disorganized frequency to them. He thinks he knows what the company is doing wrong and even though his expertise is limited, he gets more involved than he should. When things do go wrong or don’t turn out as expected, this angel lacks the maturity and experience to understand that nothing ever goes as expected so he panics and exacerbates the problem by making the entrepreneur spend time comforting him.

Unfortunately the last type of angel is unavoidable. Many entrepreneurs have to take his money because raising money is hard and being selective as to whose money to accept is not a luxury most entrepreneurs will have. In spite of the fact that it’s tough to not take this angel’s money, it’s important to identify him early so one can be prepared to manage him.

Make sure to interview potential investors. Ask them what investments they’ve made in the past, how those have turned out (failures are actually good here because it means they’ve handled difficult situations before), how they reacted to failures, and what level of participation they expect in your business. Find out how they plan to contribute, if at all, and if the angel happens to reply that he’s more of the silent type, it might behoove you to take his check immediately.

  • Show Comments

  • Nolan Clemmons

    Excellent post, Sammy!

    As entrepreneurs, we must always remember that fundraising is a two-way street. As the article states, because the process is so competitive and access to capital is scarce, this can cause founders to appear “desperate” (for lack of a better word). Part of this falls under negotiation, but most of it applies to due diligence (from the entrepreneur).

    I’d also like to point out AngelList Syndicates (https://angel.co/help/syndicates), where one investor reserves an allocation under his name, contributes at least 10% of that himself, and fills the rest of it with money from investors that back him. The advantage of this is the companies only have to report to one individual, as opposed to an entire group. This could be used to obtain a mutually beneficial balance of silent vs. hands-on investors, saving both parties time.

  • Sulaiman Su Sanni

    Nice post sammy. This was helpful.

Comments are closed.

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