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What kind of Angel Investor is right for you?

lucifer“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
– Warren Buffett

According to biblical legend, Lucifer was the angel who fell from heaven. In Tech City we are used to Angels of a different kind; they are the charismatic, mercurial and demanding characters with cash to burn, helping to fan the flames of start-up investment, to be found circling pitching events in Shoreditch, when they are not soaking up the sun on their super yachts, moored in Monte Carlo, and gambling the nights away at the Café de Paris. If you are lucky enough to grab an Angels attention, how can you be sure that they will make good on their promises, sign the cheques that need signing, and “grow the pie” in a way that suits your start-up, not their own nefarious misdeeds. In short, could they turn out to be the devil in disguise?

I’m exaggerating of course, but to the cash strapped entrepreneur, Angels can often seem intimidating. They are a necessary evil, a means to an end. In your mind’s eye you have a vision of what you want your Company to be, and your every waking moment has been spent trying to deliver that vision, for the betterment of society, yourself, your clients, and your staff. Now only one hurdle remains. Standing between you and your dream is a cash injection that only an Angel can provide.

Angels come in all shapes and sizes, from all walks of life, but sadly, they are unlikely to just drop out of the sky, tripping the cash fantastic. They come in consortiums, fronted by a gatekeeper with a sharp suit and implacable smile; they come in the night, haunting underground bars and private members clubs; they come together, they come alone. Sometimes they don’t come at all, even though they promised they would. For the big game Angel hunter, the chase may be thrilling, it may be an unwanted distraction, and it usually involves a lot of waiting. You never know how close you are to an Angel, so don’t give up, keep trying, and follow these 3 guidelines to make sure you end up the with the right kind. On your journey, you want an angel on your shoulder, not the cold shoulder. Or you may end up on the hard shoulder. And guess who will shoulder all the blame?

angelWhere has your Angel come from?

Crucial. An Angel will undoubtedly perform background checks on you, the least you can do is extend the same courtesy. Of course Angels aren’t mythical figures; a good one, the kind you want to be working with, will have been demonstrably successful in an area where you yourself also want to be successful. All Angels have a work history, probably a successful one, but not making sure that it is the right kind could be fatal. Also check if your Angel fronts a consortium, because if they do then their expertise may be diluted by the demands of their fellow investors. If you cannot obtain the information you are looking for, ask them for it, even if it makes you feel uncomfortable to do so. Many entrepreneurs, new to investment, assume it is ok to follow somebody’s lead. It isn’t, it’s the same level of grind, struggle, and detail you deal with everyday, doubly so as you are handicapped by a lack of experience in this area. Take a rabbit in the headlights approach and you will meet with a grisly end.

Does your Angel understand your business?

An Angel who has worked in a similar industry to your start-up is a good start, but it is just the start. They may have their own ideas about your product which you do not share. Remember, people hear what they want to hear. So when you are pitching take care to reinforce each point you make, and watch for their response. Let’s say your new product is a paid for app; your Angel, who has been in mobile advertising for 20 years, is thinking “in 6 months we’ll have so many ads the product will pay for itself, I know because I’ve been there”. But there is no right way, and performing a volte face in front of an Angel will do 2 things. Make them think you are pushover, and make them think they understand your business better than you do. Not good news.

What is your Angel’s exit strategy?

The vagaries of the stock market have often caused havoc for companies that float; pump and dump strategies, short sellers, second guessing the market, can see a stock price rise and fall like one of Richard Branson’s air balloons, and valuations will be ephemeral at best. The same is true of early stage and even series A funding. If your investment Angel is looking for a quick sale while you are looking to change the way the world thinks about mobile payments, or Google search words, or whatever, then you have a problem. Most Angels will be open and up front about what they want their investment to achieve, and most will want you to succeed in both the short and long term. But again, it all comes down to how they perceive your company. It simply isn’t worth taking changes, because you will be playing Russian roulette with your future. A 3-5 year exit strategy is common, and if the Angel is acting on behalf of other investors, they will be extremely keen to see a return on their investment in that time.

angel hunterIf you don’t believe your Company can deliver that kind of growth in that time-frame without compromising its goals, then you must make the right call: what is more important to you, the sun seeker, the models, the speedos? Or your Company, your staff, your public. Its a choice many people will nvever have to make. You’ve come this far,  it’s time to dust off the deerstalker, oil the rifle, and go Angel hunting again.

 

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