It’s been said that founding and running a startup is like jumping out of a plane and then having to put together your parachute while falling. It’s scary, you’re risking a lot, and things need to be done quickly but accurately to be successful. Every founder feels the pressure of creating a successful business, but those that have trustworthy and focused angel investors in their corner have a step up on their journey.
Angel investors—like venture capitalists—fund early-stage entrepreneurs, but they often have the added benefit of having extensive business experience and are able to serve as startup mentors to the entrepreneurs they back. We’re diving into what makes a good angel investor/entrepreneur relationship.
Table of Contents:
- Benefits of a Great Startup Mentor
- Insights into Various Industries
- A Vast Network
- Strategic Vision
- The Right Resources
- Habits of a Good Entrepreneur Mentee
- Find the Right Partner
- Set Expectations
- Be Responsible
- Respect Each Other’s Time
- Be Open About Your Needs
- Be Flexible, Patient, and Open to Learning
- Questions You Should Ask Before Starting a Relationship with an Angel Investor
- Wrapping Up
Benefits of a Great Startup Mentor
An angel investor-entrepreneur relationship is beneficial for the entrepreneur not just because of the funding, but because an angel investor can be a mentor that guides the entrepreneur through growing a business. Here are some of the ways an angel investor can mentor an entrepreneur.
Insights into Various Industries and Technologies
Angel investors often have extensive experience in founding and running their own businesses. In addition, many angel investors have invested and engaged with businesses in many different industries. They can bring these experiences and expertise to a startup to guide them down a path toward success.
When an angel investor funds a startup, they will often request a seat on a company’s board, or at the very least, a company can share that they have the insights of a proven business owner on their side. Angels have experience and a reputation that they bring along and this itself can be a catalyst for a growing business.
A Vast Network
An angel investor has experience, and with experience comes a circle of contacts that can eventually become supporters. This can manifest in a few different ways—first off, they can bring in additional seed funding from other investors if necessary. More importantly for a growing business, angel investors can help entrepreneurs source a highly functioning and intelligent team to support the business. It’s especially important for entrepreneurs to find trusted and efficient partners that will be able to run their individual departments once the business starts growing, and an angel investor’s network can source good leaders for a startup team.
Many angel investors have previous experience as entrepreneurs, including the ability to build, grow, and sell a business. No matter what stage a business is in, angels can provide valuable advice to help that business grow.
The Right Resources
Most startups try to run lean, which means that resources are tight, and the team can be stretched thin. Since angel investors often have the industry experience, they’re usually willing to roll up their sleeves to provide needed help where they can, sometimes giving input into product, sales, branding, marketing, human resources, communication, or finance. Even those who don’t provide direct assistance will connect entrepreneurs with the resources they need, whether it’s helping to bring someone in-house or finding a solid partner for outsourcing.
Habits of a Good Entrepreneur Mentee
While an angel investor provides a great deal to entrepreneurs, the partnership goes both ways. An entrepreneur has a responsibility to be a good mentee to an angel investor as well. Here are a few ways they can do that.
Find the Right Partner
Before even getting into a relationship with an angel investor, it’s important that an entrepreneur chooses carefully. While it may be tempting to take the first funds available, it’s more advisable to be thoughtful about who a founder partners with. Find an angel partner that aligns with what you’re looking for, especially from a values perspective.
As you enter any partnership, it’s important that boundaries and expectations are set. Communication is key and making sure everyone is on the same page for how often that communication will happen will be important for the partnership to be successful.
Just because you’re in a relationship with your startup mentor doesn’t mean that there is automatically trust between you and them. Trust is developed and nurtured, and this is something that you need to establish from the get-go. Be truthful and transparent with your angel investors so you can be mutually successful.
Respect Each Other’s Time
Growing a startup is a busy project and everyone is short on time, both entrepreneur and investor. When you have calls or meetings, be prepared. Communicate regularly, but make sure it’s useful communication.
Be Open About Your Needs
Communicate your team’s limitations and let your angel investor know where they can help. Accept ideas with gratitude and give feedback if you want to change something or need a better explanation. Close the loop and let them know when something is successful.
Be Flexible, Patient, and Open to Learning
Your angel investor can’t and won’t do everything for you, but they can give you guidance. You need to be willing to accept that guidance and use it to your advantage.
Questions You Should Ask Before Starting a Relationship with an Angel Investor
- What is your investment process? How long does it usually take?
This is pretty basic, it gives you an idea of how long and intense the due diligence process might be as this is different with every investor.
- What do you take into consideration when making the decision to invest?
This question will give you insight into the types of businesses the angel investor looks for and what the qualities of those businesses are.
- How many other deals have you done? How recently? How many businesses are you involved in right now?
This gives you an idea of the investor’s experience, and possibly more importantly, how thin they are stretched with their investments.
- What’s your philosophy on management? How much do you want to be involved?
Get insights into whether the investor is a micromanager that needs updates every minute, or completely hands of and doesn’t want any updates at all.
- What are your expectations for communication? How often do you want to be updated and what should those updates look like?
This question sets expectations from the beginning of how and when to communicate—this is key to a successful entrepreneur/angel relationship.
- What concerns do you have about investing in my business?
This question gives you the opportunity to clarify anything that the angel may feel you missed and can give you a chance to defend if there are any issues.
- How much are you looking to invest? What do you expect for that amount of investment? What is your follow-on strategy?
This question gives you an idea of the long and short term and how long your relationship with the investor may last, as well as a general dollar amount. It’s important to get this information early so no one’s time is wasted if it’s not the right fit.
Personality Traits to Look for in a Startup Mentor
Here are some of the unmistakable characteristics of good angel investors that set them apart from the rest in the angel funding market.
- Experienced: The best type of experience is relatively recent, relevant, and relatable experience that provides a foundation for your startup. Someone who has been in the trenches and can give you insights into your industry is one characteristic you should be looking for in an angel investor.
- Committed: Not only do you want your startup mentor to buy-in to your business, you want them to stay involved and interested. The best type of angel partner is the one that gives you guidance when you need it and helps you navigate the tough decisions every early entrepreneur will have to make.
- Trustworthy: Having a business funded by an angel investor requires trustworthiness from both sides. You don’t want someone to invest in your business that is unsavory and could cause you issues down the line, and similarly, if you aren’t truthful with your investors you may have trouble finding much-needed funding in the future. The best type of investor is the one you can rely on outside of just monetary needs, it’s the one that can help you build your business and will work with you in the long term.
- Decisive: Experienced and seasoned angel investors have seen many proposals, so they can see vision and organization pretty quickly. Great angel investors are those that will look at all the information and give a quick verdict on big decisions, so they don’t waste anyone’s time and energy.
- Supportive: Sometimes the benefit of an angel investor is not guiding when times are high, but also supporting when times are low. A great angel investor knows that businesses have ups and downs and can guide you through the struggles in addition to celebrating successes.
- Patient: They say patience is a virtue, and a patient business partner is imperative for a startup. They’ll understand that success doesn’t necessarily happen overnight for a startup and it could take time to get where you want to be.
- Candid: You want your angel mentor to be straight with you—tells you what you need to know even if it’s something you might not want to hear. There’s no room for sugarcoating in the fast-paced world of startups.
- Risk-Taker: In the startup world, success isn’t guaranteed. While most angel investors aren’t too timid, the best and happiest angels get a thrill from making a company succeed and helping them get there by whatever means possible.
- Overall Good People: The best types of angel investors are those that are truly a pleasure to work with—they thrive in a cooperative environment, and bring integrity, knowledge, and a good attitude to the table. They’re excited about your business and excited to work with you and are ready to go on the journey of building and growing a successful business with you.
Rules of Mentor/Mentee Engagement
- Set Goals: Setting expectations early on will make certain that everyone is comfortable and on the same page when entering and continuing the angel/entrepreneur agreement. This means making clear what role the startup mentor will play and how deep into the business they will be interacting.
- Define Communication: Keeping each other up to speed on what’s happening is key to a great partnership, so defining the who, what, when, where, and why of communicating will be of utmost importance.
- Trust Each Other: Trust is built, but it should also be expected from the relationship. You shouldn’t enter into a relationship that you don’t trust, so starting off on a positive foot where everyone trusts that they are out for the same goals is key to a successful partnership.
The world of angel investment is growing, and startups would be keen to take advantage of the growing opportunities. Entrepreneurs can not only take advantage of the funds that an angel investor offers but also of the mentoring capabilities and experience that they bring to the table. The benefits of having a strong and experienced mentor in a fiercely competitive market can surely tip the scales in any growing startup’s favor.
If you’re looking for more advice and guidance on how to grow your startup, please connect with me on Twitter.