Angel Investors: A different breed of animal

I often get asked by entrepreneurs what it is like pitching a business idea to a group of Angel investors . I also hear of frustration in general, about not quite knowing what is expected in a VC or Angel pitch. Earlier, I wrote about the art of delivering the perfect fast pitch.

So are Angels similar to VCs? The short answer: Yes; The long answer: Not quite!

Sure Angels and regular VCs are looking for the same things: A good team, decent ROI in a reasonable time frame, etc. etc. But that is where the comparison ends.

Angels are a breed apart. I have gone through the whole gamut of raising funds for my company, started 3 companies (ok, we won’t talk about the road kill of 5 or so that never saw the light of day), invested in and mentored several companies in an incubator, and now am fortunate enough to be part of the Tech Coast Angels - the largest network of Angel investors in the world. Sitting in many startup presentations has given me some perspective on the pitch process - much of which is very different from what I believed when I was the person under the hot lights.

1. Angels play in a different sandbox: When I was in startup mode, I always thought that Angels, since they invested their own money, would be very risk averse. Not true. Most Angles have a some money stashed away for groceries and gas, and after that have managed to carve out a little play money that their spouses have agreed to look the other way, on. Within that sandbox, the investor is going to do whatever the heck they please. They are not answerable to anyone. If they lose money on a deal, they shrug and move on. It is worth remembering that VCs do invest other people’s money, so they have to be more conservative.

So if you have an oddball idea that everyone has told you will never get funded, try talking to an angel. You never know….

2. Angels are Vegas players, with one extra gene: Most Angels probably know in their bones that if they were just out to invest money, there are a whole lot of higher return, lower risk investments that they could be in. I would probably put all my money in overseas real estate right now. But Angels are not just investors, they have an extra nurturing gene. Most of them delight in helping and coaching a start-up, and seeing it succeed.

For that reason alone, Angel money is one of the best deals for a start-up company. Many VCs will not even invest unless they know that there is some Angel money that has gone into a deal. When you think about it, how often do you find a smart and experienced consultant (the angel, of course!), who is actually going to pay you for all the value that they bring in?

3. Are Angels are just a bunch of rich people who just got lucky? Not!. I was once asked this question, and after some time of hanging around with Angels, I can only say that they did not just get lucky. Many of them started companies themselves, and after a lot of work, managed to have one or more good exits. Many are professionals who have spent many years in the business arena, doing what they do best, and who have decided, for various reasons, to be involved with startups. I suspect many not only enjoy the investment aspect, but also look forward to the camaraderie of other angels - and they think that that is a lot more fun than being hunched over etrade all day!

4. There is strength in numbers: With Angels, you are typically pitching to a large group (on average from 10 to 100 people). No matter how specialized your niche, you are very likely to find one or more Angels who understand your domain really well. And Angels do make up their own minds regarding all their investments. So by and large, companies will find at least a handful of Angels (mostly more) who are at least interested enough to spend some time looking at the deal further, if not investing in it right away.

5. Angels make great girl/ boy scout leaders: There are instances in which a deal did not get the exact amount of investment that the company was looking for. Sometimes the deal is oversubscribed (a good thing!). In those cases, Angels tend to share the round so as to let in all those who are interested, and reduce the amount invested per angel. Sometimes, the round is not enough. In those cases, Angels are remarkably good at marshalling the troops within, or finding outsiders who happen to be sitting on a pile of cash, to co-invest. If the round is a large one, oftentimes, Angels will bring along VCs they know, into the deal.

 

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5 Responses to “Angel Investors: A different breed of animal”

  1. By Dube on Mar 21, 2021 | Reply

    Great post! Very insightful.

    You are so right about the risk taking. VCs want to see everything in a nice and tidy package. However one needs the outside support to make things nice and tidy.

  2. By Sunil P on Mar 22, 2021 | Reply

    IN a way, the investment level works as a filter in terms of risk too. Once the company is a “going concern”, by definition it is not as risky as just having an “idea” which may or may not work.

    I have seen more VC’s exercise stringent control on the company then I have seen Angels do, but it may be my draw and may not be a general phenomena.

  3. By Spark on Mar 22, 2021 | Reply

    In the VC investments, people say that it is the particular partner that matters, is that true for angel fund too?

  4. By Toni D. on Mar 23, 2021 | Reply

    Sunil, I think that is a highly institution dependent issue. In general all VCs will want to protect their investment. That said, most do not like to micro-manage if the management team is competent, since they are busy with other things. Most Angels I have spoken with say they prefer to let the management team run with the company and will throw in some guidance when asked, or when things are going clearly wrong.

  5. By Toni D. on Mar 23, 2021 | Reply

    Spark, Yes it is important to find the partner who does deals that are in your space. They will become your most effective champions.

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