.and More Importantly, What to Look For
Angel Investing - The Undisguised Truth
The best ideas in the world need capital to get off the ground but to truly succeed, they must also have the right management and the right exposure to maximize their potential. Depending on the product or service, many angel investors, despite their access to capital, should be disqualified from consideration by an entrepreneur due to their lack of financial acumen and their fundamental misunderstanding of the business world.
Many angel investors are just small time entrepreneurs, themselves. They are merely looking to latch on to the next best thing. These investors bring nothing to the table other than some money, their avarice and a desire to micromanage your business. They are easily identified as they will demand an inordinate percentage of your business for their initial investment.
Savvier angel investors understand that their investment is just the starting point for most businesses. Much time and energy must still be devoted by the principals to make the venture a success. These investors will usually ask for a lower percentage of your business. In return, they will require a carefully prepared and viable business plan that considers, not only the upside of the business, but the downside as well.
While the first type of angel is easily convinced to invest, they are ultimately a source of far greater aggravation than the latter type. It is simply much better to do your planning ahead of time. In this way, you and your investors know what to expect and can make your plans accordingly.
While most every entrepreneur is certain that they understand their product better than anyone else, it is a well-established fact that the markets and industry have their own ideas. Regardless of how revolutionary your product is, it will still have to conform to the needs of manufacturers, marketers and, ultimately consumers. There is just no other way to bring a product to market.
With these facts in mind, it is extremely beneficial, if not essential, that a start-up company have some experienced business advisors on hand. Starting a company from scratch is difficult enough without having to reinvent the wheel. Advice from experienced business people can not only facilitate the creation of the company but can also avoid many costly mistakes that will drain resources from the company.
In short, sage business advice can lead a new company to affordable options when it comes to human resources, accounting services and technology suppliers. The business world is full of landmines that are best avoided by companies that do not have the resources to survive a single bad decision. Be sure that the people who invest in your company are seasoned veterans who can add more to the mix than just their money.
In the same vein, angel investors who have a respectable business history will also have a substantial number of industry connections. These connections may be valuable or they may not but networking is one of the most efficient ways to create value in your new company. Simply put, as the old saying goes, it is not always what you know, but who you know.
Industry connections are also valuable form a supplier standpoint. With a respectable investor as a backer, more options are available including faster production turnarounds and better credit terms. It is much better being on the inside than just looking in.
The Bottom Line
The essence of the angel investor/entrepreneur relationship is initially an antagonistic one as both parties struggle to obtain the best deal. Once the initial negotiations are finalized, however, things should change. At this point, both parties should be interested in aligning their goals.
The real challenge in finding an angel investor is determining whether or not they understand this dynamic. Most novice angels are impetuous in their investment and looking for a quick hit while the more valuable ones are patient will put you through the ringer before investing. In the long run, it is the latte type of investor who well bring the most value to your new company.