When you’re an early stage startup (or in our case, 10 of them), there are a lot of questions about angel investing. What is it, how does it work, who should I talk to, how do I know when I’ve met the right one and the list goes on. We decided to crack the issue wide open by booting our questions to a well qualified panel of four smart, funny and honest angels: Ron Gutman, Ross Fubini, Francine Hardaway and Gil Penchina. Each person’s background and perspective was different, but the passion for working with early stage entrepreneurs was universal.
It’s a dating game
Many of the same rules that apply to building a solid relationship apply to angel investing. Trust and chemistry were words we heard over and over. There are many different routes to building trust: being transparent, exhibiting your passion and being up front about problems while planning how to get through them. And also just like the dating world, chemistry matters. If it’s not there, it probably isn’t going to be a successful partnership. Ron’s most adamant advice? Be yourself, don’t try too hard, and if you are genuinely passionate about your idea to the right person, things will come together.
Good Angels vs. Bad Angels
When raising money, is it better to get money from your neighbor or a well qualified angel with experience in your vertical? Depends who you ask. Francine recommended trying to get “smart money.” Ideally, look for someone who will add value along with their money. Someone who knows the industry, can help you network and will give you good advice. Ross agreed, explaining that having money and a person that will stick with you and believe in your idea is key.
While having knowledgeable investors is ideal, but Gil pointed it that it’s important not to lose sight of you goal, as realistically, you may just need some funding to push your idea to the next phase. Start with a list of “ideal investors;” people that could give more than just money. When you have exhausted that list, then you can start looking to those you can just give you money.
While it seems a lot of great angel investors are on Angel List, the general consensus from our panel was that it isn’t really the place they use to source ideas or companies. Francine admits to only taking a serious look at an entry if a friend recommends doing so. As Gil succinctly puts it, “Angel list is a great knowledge tool, but a lousy dating tool.”
What is a lead investor?
There are several types of lead investors. Ross broke it down into two categories:
- Some lead investors set the price by which others will follow, something that not all investors are willing to do.
- Other lead investors are more “syndicate leads.” These are people that are good at collecting additional investors to back your idea.
Sometimes leads will want to get more for their money, like a discount or advisory shares. So does this mean everyone in the syndicate gets the same deal? Ron doesn’t necessarily think so, since they are the ones lending you their name.
A big thank you to Gil, Francine, Russ and Ron for sharing their time, and answering all of our questions.