There are many benefits to having angel investors.

You get capital + expertise + a relevant network, in the best cases. Angel investors can also become your best ambassadors and supporters. How awesome is that?

Startup-investor relationships can, however, turn very sour if you get the wrong ones on board.

Watch out! Here is what can happen:

1. Control loss: investors may want to influence the business’s direction.
2. Giving up a large portion of ownership. Some investors are greedy. To get a higher stake, they can push for a low valuation. They can also ask for non-dilution clauses which will cause you issues with future investors.
3. The decision-making process may change: you may need to take their input and feedback into account.
4. Pressure to deliver returns and growth at any cost. Investors are looking to make a return on their investment. That´s why they invest. They can put pressure on the founder and the business to perform financially. And if things go wrong, guess who takes the blame?
5. Pressure to sell too early: investors may want to exit their investment at some point, which can put pressure on the business to sell or go public.
6. Potential for misalignment: investors may have different expectations and agendas than the founders, which can lead to frustration and conflicts.
7. Risk of losing the company’s culture: they may want to implement changes that may not align with the company’s culture, values, or mission.
8. They can damage your reputation if you don’t comply with their advice.
9. They can waste your time with many questions, reporting, and dialogues (even before investing, which is a huge 🚩).
10. They can kick you out of your own company. Yep, I have seen that happen. In fact, I’ve seen all these scenarios play out.

Anyone can call themselves an angel investor…

Founders need to do their Due Diligence on potential investors ⚠️

How to make sure you are talking to the right one(s)?

Well, you can never be sure of anything (sorry to be a joy killer), but! There are some precautions we can take.

As Andy Chen, former CEO of Tidal (acquired by Jay Z) told my team 8 years ago when we approached him as a potential investor:

“I need to get into bed with you”.

Meaning 👉 Before investing, I need to get to know YOU ALL VERY WELL. And we were 5 on the team, so that was going to take some time.

So Andy joined us as an advisor, so we could get to know each other.

You can do the same: offer the potential investor to become an advisor. Work together.

Or add them to your newsletter for investors.

Or go have a drink with them, or several 🥂. Party with them.

Whatever works for you, find ways to get to know each other.

When I became an investor, I even went on holiday with some founders before investing in them. I needed to get to know them.

Here are a few questions you can ask investors to guide you in the process:

1. What is your investment strategy?
2. What is your process for due diligence?
3. What is your timeline for making a decision?
4. What is your experience investing in startups?
5. What is the average size of your investments?
6. Do you have the capacity to do follow-up investments? (Ideally, you want someone with deep pockets)
7. Are there any restrictions on the use of funds?
8. What other resources do you provide to startups? A relevant network? An office space? Expertise? Some free services?
9. How do you identify potential investment opportunities?
10. What kind of return do you expect from your investments?
11. How much involvement do you plan to have in the startup?
12. Why are you interested in investing?
13. What did you do before starting to invest?
14. How did you make your money?
15. What is your story?
16. What is your why?

Don´t be shy to ask any questions that you feel you need answers to.

Finally, some questions to ask yourself:

1. How do I feel around them? (What´s your gut feeling telling you? Always follow your gut feeling)
2. Do I like spending time with them? Would I want to work with them?
3. What is their reputation?
4. Do they understand what it is like to be a founder? Have they been a founder themselves?
5. Do they have realistic expectations?
6. Are we aligned on the expectations?
7. Can I deliver what they expect?
8. How would they react if things go wrong?
9. Can I be vulnerable around them?
10. Do I feel safe around them?

There is more:

Check their reputation 👉 talk to startups they invested in.

Don´t get investors “too early”, before you are crystal clear on your why and have demonstrated market validation.

‘Find out if you really need investors or if you just need cash 💸

Cash, you can also get from clients. This is how I love helping my clients. I help founders fundraise + increase their sales. So they are in a much better position when they are fundraising and negotiating with investors 💥💥💥

Voilà!

In February, I am hosting a group program for max 10 startups getting ready to fundraise and grow. Interested? Reach out 🚀

In the meantime, stay inspired!

Raja S.