Editor’s note: Bill Warner writes “The Angel Connection” which is a regular feature in WRAL Local Tech Wire. LTW asked consultant Bill Warner to share advice for entrepreneurs seeking angel investors and/or venture capital investment. He is chairman of the Triangle Accredited Capital Forum, an angel investor network with over 100 members throughout the Southeast.
RESEARCH TRIANGLE PARK, N.C. – Entrepreneurs need to take care to choose angel investors that are going to add value to their business in addition to the cash infusion. Believe it or not, there are some bad choices of angels. The trick is to avoid the angels that might cause you some problems in the future.
Just because they can write you a check, doesn’t make them your best choice for a business partner. Entrepreneurs need to take a deeper look into the background of potential angel investors and find out who they really are. Here’s what you need to avoid:
• The predator – is an angel who is going to take full advantage of the economic situation, the entrepreneur’s need for money, and perhaps the entrepreneur’s lack of experience and construct a deal that is so one-sided that the entrepreneur is left out in the cold. In addition, they will have the tendency to take you to court when the going gets tough, knowing that you cannot afford to defend yourself.
• The rookie – will waste your time with endless due diligence and meddling in your business that he may not be worth taking the money. He is more of a drain on your time than a help in moving your business forward.
• The ex-executive – is a former high level corporate executive that has an ego as large as a barn and not a lot of experience in start-up companies. They have an attitude of being superior to the entrepreneur and will often lead the entrepreneur down the wrong business path.
• The meddler – takes up your time by requiring too many controls on the entrepreneur and the business. In addition, they may actually take a management role in the company just so they can see what is going on.
• The dullard – is perhaps an angel that just doesn’t have the savvy required to run a business, and has never done so. They got their money from stock options or inheritance and want to try something new. They will waste your time.
• The broken angel – has tapped out with too many loses, or is awaiting exits. This angel will take up a lot of your time but never actually make the investment.
• The broker – is quite common. They make you believe they are investors with a syndicate of investors they lead, but they are really people that want to make retainer and success fees off of the entrepreneur. It is rare that they add value to an angel deal, and most real angels don’t want to have anything to do with them.
What to look for in a good angel
The angels you want bring considerable business value and are the kinds of people with whom you want to have a long term relationship with. The value comes in various forms:
• Deep knowledge of your industry
• Relevant and successful business experience in your market
• Influential position in your community and industry
• Industry contacts that can turn into customers or partners
• Solid management and leadership wisdom to coach you through tough times
As you search for angel investors, look for the ones with the wings that can really take you to where you need to go. By all means, make sure you have your attorney create the investment documents. That way, you know they are right.
About the author: Bill Warner is the Managing Partner of <, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the chairman of the , an angel investor network with over one hundred members throughout the southeast.