Many startup entrepreneurs find themselves in an all-too-familiar situation. They work diligently preparing a pitch deck for angel investors. They scour the landscape, searching for the perfect investor who can inject financial help and knowledge into their business. There are meetings involved, contracts to sign, and terms to discuss. Then, once the aspiring entrepreneur gets the check, the joy and validation of all their efforts quickly turn to a simple question: “now what?” How does this entrepreneur work with an angel investor?
Having an angel investor onboard should involve so much more than the funds they provide. Angel investors provide essential guidance, mentorship, and connections during the earliest phases of the business. Their influence can make the difference between a successful endeavor and one that falls flat. Therefore, as the founder, it’s vital to learn how to work with an angel investor to maximize their contributions and achieve success!
Table of Contents
Every angel investor is different. Some angels like to be super hands-on and know the intricate details of your business. Others want to be completely hands-off. Hopefully, when you were meeting with your angel investor, you got a good sense of what the person was like during those meetings.
Most investors fall somewhere in the middle. Their money is on the line, so they want you to succeed. Therefore, they’re happy to help whenever they can. However, they also don’t need the day-to-day minutiae of what your business is doing. In other words, it’s good to keep them informed of the bigger picture, but not bog them down with extreme details.
Given this, the first step is to establish a regular cadence of meetings and sync ups where you can pick the brain of your angel investor. You and the investor need to work out a schedule, but generally, weekly calls are a good idea initially. Then, as you develop a better rapport with them, and they understand your business, you may wish to decrease the call frequency to once a month.
The frequency doesn’t matter as much as the dedication and commitment to making the calls happen. All too often, angel investors and founders get busy. They don’t make time to sync, and, before you know it, there’s been some monumental development at the business. Depending on what that is, the perceived lack of transparency could be detrimental to your working relationship. Make the time. Schedule regular calls!
How do you tap into the expertise of your investor? Just ask! Seriously, it’s that simple.
Some entrepreneurs may be hesitant to ask questions. They may be concerned that asking about the wrong things will make them seem new, inexperienced, or unknowledgeable. Fortunately, this perception is not reality. When you work with an angel investor, you should feel free to ask as many questions as you want. The investor would much rather take a few minutes to explain a concept to you than have you make a blind guess and cause damage to the business.
Of course, it’s also important to consider what types of questions you should be asking. Typically, you’ll get the best answers if you ask questions related to the angel investor’s background. When you work with an angel investor, you will want to make sure your questions focus on areas in which they would best be able to assist. For example, if you’re looking for a marketing answer and your angel investor has had experience with this before, you’re in luck! However, asking your angel investor to solve your startup’s tricky code problem or discuss how best to scale up your tech infrastructure, might not be the best use of time, depending on their background.
Your angel investor has a wealth of knowledge that you can tap into to learn, grow, and make better decisions as an entrepreneur. To unlock that knowledge, you need to ask. Before the next meeting, make a list of questions that you have and make sure to reserve some time to iterate through them.
To be the most productive, it’s a good idea to share the final questions with your investor a few days before the scheduled meeting. That way they will have time to reflect on the questions and can give more insightful answers. It also cuts down on the “that’s a great question, let me get back to you” dilemma.
One of the best assets that an angel investor can bring is a diverse network of contacts. Many angel investors are former entrepreneurs themselves who have many contacts in the business.
Therefore, if you ask an angel investor about something and they aren’t sure of the answer or don’t have the right information, ask if they could connect you with someone who does. When you work with an angel investor, they will often be able to connect you with people who can help you with whatever you’re facing. These networking opportunities can have an invaluable impact on early-stage businesses as they provide contacts and a platform that might otherwise be inaccessible.
One particular type of networking opportunity that angel investors might be able to provide aspiring entrepreneurs is the ability to connect with other entrepreneurs that have been successful and can share their learnings. Often, discussing challenges, ideas, and current business practices can help entrepreneurs avoid common pitfalls and provide their businesses with the best chance of success. Since angel investors work so closely with so many entrepreneurs past and present, there’s a good chance that your angel investor will be able to connect you with someone who can help you grow your business efficiently.
Networking opportunities have multiple benefits for aspiring entrepreneurs. Your angel investor can help you get a head start by introducing you to some of their connections. That way, you won’t be tapping into the expertise of your angel investor alone, but rather into the knowledge of all their network connections as well. It’s a fantastic way to expand your network.
When you founded your business, you embarked on a journey. Initially, you had an idea. Then, eventually, you found or invested some seed capital. This small sum of money gave you enough flexibility to develop a prototype and show that there was an interest in your product.
With enough time, your product eventually gained enough traction that you could create a sizzle reel and attract an angel investor to put some money into your idea.
After enough time and with enough smart decisions, you’ll eventually be able to get to the next stage, Series A funding with a Venture Capital fund. There’s a good chance the angel investor with whom you are working has invested in companies that have raised capital in the VC round before. Therefore, they know what’s needed to be successful at this stage.
Ensure that you leverage that expertise to help you secure the next round of funding. Your angel investor might be able to introduce you to some VCs who would likely be interested in your product. As you might guess, VCs and angel investors tend to run in the same circles, so it’s not uncommon for VCs that your angel investor knows to look favorably upon your business because they trust the angel to guide it correctly.
Of course, entrepreneurs won’t need this guidance right away, but what you can start to do is work with an angel investor to understand the metrics that would make your business attractive to VC firms. These metrics will define the quality goals, timelines, and milestones that will give structure to your company and enable it to continue to grow in the right direction. Understanding these metrics early on will save you quite a bit of grief in the future!
During your initial investment meetings, you would have likely discussed a seat on the board as being a condition of investment. Most angel investors request one because they want to have some say in how the business runs.
If your angel investor wants a seat on the board, that’s fantastic! In that position, they will be able to review relevant documents and provide guidance. By law, they must also have a fiduciary duty to the company, so legally, they must always do what’s best for the business.
If, however, the angel investor you’re presently working with has not expressed an interest to be on the board of directors, that might be a sign that tapping into their expertise will be difficult. They might want to be very hands-off and merely receive a few status updates as to the state of the company and their investment.
Look for angel investors that are interested in having a seat on the board. If you have a rare angel investor that doesn’t want a place on the board, it may be worth bringing this subject up with them so they can still provide the expertise you need outside of the board meetings.
Tapping into the expertise of your angel investor won’t do you any good if you are not willing to take the ideas and thoughts from that expertise and incorporate them.
For example, suppose your angel investor tells you that the way you handled a personnel change was “suboptimal”. Your angel investor then suggests another way to do it. If you shut those ideas down and don’t take the opportunity to learn and grow, you won’t be tapping into the expertise. Quite the opposite – you’ll be actively pushing it away! Experiences like those will also make your angel investor wary of giving you future advice because they may not feel you’ll take it. Furthermore, with enough instances like that, the investor might quickly start looking for an exit strategy out of their investment.
Entrepreneurs must always be learning and growing. If you don’t take the feedback from your angel investor and work with it, that’s not learning and improving your skills. Leverage your angel investor’s expertise to adapt and grow. If you take the opportunity, now, to do so, then you won’t face the same issues at later funding rounds.
Indeed, one of the aspects of the business that your angel investor can show you are the “soft skills” necessary to succeed. Learning how to make confident presentations, for example, will save you many headaches when you go and try to secure VC funding. Similarly, your angel investor can show you how to land clients and negotiate bigger deals. These might all seem like small things, but they can make a world of difference when advancing to the latter stages.
Ultimately, when you bring an angel investor on board, you’re not just cashing a check. That part is simple and requires little effort on your part! While the money is valuable, of course, the most significant positive that an angel investor brings is the expertise they have. Instead of repeating common mistakes that other entrepreneurs have made, your investors will help you avoid them.
To achieve this goal, you’ll need to work with an angel investor, not just in terms of the check, but with your whole business. The value they bring isn’t the money they put in (although that’s important). Instead, it’s the expertise and in-depth knowledge of investing in multiple companies and multiple different founders. Quality angel investors have seen businesses work and reach VC funding stages. They’ve also probably had their fair share that failed miserably. Since they’ve seen it all, they can help advise you on how to be a part of the pack that hits the VC funding rounds.
To tap into this expertise, schedule regular calls. Keep those calls, and try your best not to cancel. The time you spend with your angel investor will undoubtedly be crucial for your organization’s success. Ask lots of questions. Ask about and for networking opportunities. Your goal is to use your angel investor to maximize the chance of success for your business. By helping them help you, you’ll return the favor to them with a successful exit!
Work with an angel investor so they can help you reach the next stage of funding. If this is your first startup, the process of raising funds at the VC rounds can be daunting. A skilled angel investor should help you navigate this.
Above all, remember that the involvement with your angel investor doesn’t stop once you receive the check. Quite the contrary, it’s just begun!