We’ve co-invested with hundreds of Angels over the years. The majority have been either helpful or inconsequential, but a few have been downright harmful and destructive. One bad apple can ruin the whole bunch. Regardless of how small an investment is, each investor has rights and protections that if leveraged incorrectly can create havoc and kill a fragile startup.
Angel investors come in many different flavors. For the purposes of this post I’ll define an angel investor as anyone who is investing their own capital and not investing fulltime.
Here are some recommendations of how to pick the right angel investors.
Get to know them
While this one seems obvious, I can say most founders and co-investors don’t really get to know their investors before they take their money. Nothing can substitute time and interaction on this one. Learn what makes them tick, what excites them, what frustrates them and what’s the best way to work with them. This can’t be rushed and will take time. The more opportunities you have to see each other in different situations, the more informed you will be to determine if they are the right angel for you and if your startup is right for them.
How Experienced of an Investor are they
Nothing can substitute experience when it comes to dealing with the emotional roller coaster of a startup. The more companies an angel investor has invested in the better acclimated they will be to highs and lows you will experience on your journey. Make sure some of their investments have failed and reach out to the founders of those companies to see how they responded.
Is your company and style right for them
You probably have spent your time selling your vision, which is undoubtedly up and to the right but its important to discuss the risks. Have a honest conversation with the angel about the risks that could be harmful to the company. Make sure they understand and acknowledge these risks.
Talk with them about what format (i.e. email, phone, in person, etc.) they expect updates in and how often they would like to recieve them. Respect this and follow thru with it (continuously thru the life of the company). No investor likes surprises, feeling clueless or reading about corporate milestones on TechCrunch without knowing ahead of time. Therefore a lapse in communication doesn’t usually bode well.
Ask them about their typical follow-on strategy. Some angels will never follow-on, that’s fine, just make sure you know their strategy before they make it onto the cap table and plan accordingly.
To busy or not busy enough?
Ideally you want to find angels who are busy enough that they aren’t going to be micromanaging you, but not too busy that they can’t be there to provide support. (Though successful people tend to find time to help regardless of how busy they are).
If you get the sense the angel is looking for a pet project and has plenty of time on their hands — beware you may have an unwanted co-founder joining the team.
Do Your Research
Make reference calls, better yet setup reference meetings wherever possible. Over the phone you lose the benefit of body language, which can be an incredible tell. Meet with other founders they funded, other VC’s they invested along side and if possible people who have worked for them.
These recommendations don’t guarantee a great angel investor but they may just help you avoid one who could be trouble down the road.