If you don’t know what it means to be an angel investor, don’t be one
I got an email from a founder about being held over a barrel by a few male investors who are egregious, took advantage, are disrespectful and have zero clue what being an angel investor means. I have been in this movie before and it sucks. There seems to be a romantic myth that if you have access capital to invest in a start-up be it a bakery, a restaurant, a software company or a hardware company that miraculously without being helpful and being unresponsive that somehow your money will be worth several times more than when the original investment was made in less than a year.
A founder who has started businesses that are not your classic tech start-up tend to have a much harder time raising capital. Many times they end up with assholes just like the ones I have described above. Interesting enough, many of those angels have been financially successful but are clueless what it means to be an angel investor. They tend to be so arrogant that they take advantage at every angle just because they think they know more than everyone else in the room. They prey on founders who needed cash and poured their hearts and souls into a business without any care in the world about how difficult it is for them to get to where they got. I honestly abhor these investors.
Angel investors generally provide extremely favorable terms. They are focused on helping founders get their businesses off the ground. They tend to be informal investors, ready to help but not pushy. They believe in the founder sometimes more than the business. Angel is the term used to help not hinder.
So if you are looking to become an angel investor in 2018, do your homework and understand what being an angel investor means before destroying another founders business. And founders, do yourself a favor, do diligence on these type of angels, if it smells funny before you sign the paperwork, it generally stinks afterward.
Yes. Do your diligence on them as much as they do diligence on you. If you want to allocate money to seed investing but don’t have the expertise, or the time, or the patience, or the temperament, allocate capital to a fund.
I like to refer to the people you are talking about as “Devils, not Angels.”
I love that
A good rule of thumb in these types of negotiations is that when you sense something is off, spend time paying attention to that instinct. Business deals with people we who are unknown to us often require even more patience and time to make sure all the pieces click into place. Of course, the worried Founder is anxious to get funded. But this kind of CFA [cash flow anxiety] is better healed with deliberation than with velocity. Be urgent in how you create your company and be slow in how you bring in your investing partners even as it hurts economically. Business life and life in general is full of these paradoxes. I do not pretend to be wise about them but i do know it is important to keep learning about them with a beginner’s mindset.
*it is important to keep learning about them with a beginner’s mindset.* great advice!
I try to pay attention to it myself if I don’t rush through things- J. By the way, i really love your title of this blog- “If you don’t know what it means to be an angel investor, don’t be one!” Maybe there’s a longer article in there for you to write, yes?
There is certainly a longer article…there could be a book!
And it would be a great title for a book!
It is useful/helpful to ask people how they define their “role” (as an angel) or what their vision is for the partnership. Just like references (great AVC post today as well) you should pay attention to what they do not tell you – as in, what is missing. Go with the backdoor references & gather context on the “delivered references”. I am discovering similar theme in online dating. What is communicated via pictures, emails & texts is often mis-aligned with in-person results. It is unique to find someone who digitally presents the same as what is seen and heard – the space between should be small and fun to explore.
always look through the cracks.
Inappropriate to ask what investment represents to prospective Angel’s financial well-being? Yes they have to be accredited but $10-50k (or more) can still be significant to them and their mindset, for both good and bad practical effects on founder.
If you can’t afford to lose every penny then you shouldn’t be investing. Most start-ups fail. That’s the facts.
Totally agree. Unfortunately some bad actors do not play this way. Founders need to find out signing up an angel.
In a presentation I make on the “8 Questions Every Entrepreneur Needs to Know the Answers To”, #7 is ‘Know Who’s Going to be Helpful, and Who’s Going to be a Jerk” and be willing to walk away from the table. Hardest thing I ever had to do was just that and to this day, happy with every ‘no jerks’ decision I made. Good read…thanks for sharing.