Entrepreneur’s Guide To Understanding Angel Investors

We have read many articles (E.g. 17 Things Investors Say When Really What They Mean Is, “No”) dissing angel investors for saying ‘no’ in different ways or even disguising it with creative phrases. I am privy to some of these, cause I tend to use them too. As most angel investors would agree, we all have restrictions and limitations in terms of time, capital, knowledge and patience.

There are a lot of ways to classify an investor – ‘visionary’ – taking the moonshots, ‘steady’ – will support you in the future rounds,  ‘mentor’ – guiding you along with writing you a check, ‘strategic’ – brings in more value than just the money they put in, ‘ blind’ – like to follow the game of social investing and so forth.

It is, I believe, the founder’s work to approach investors strategically too. Some groundwork can be done by examining their portfolios and reading up about their investment frameworks or getting reference checks from founders of their portfolio companies.

That being said, it would be good to understand the perspectives and intentions from opposite side of the table once because not every investor can relate to every idea pitched him and simply put – there are a lot of forces at play while investing in a startup.

• “Who else is in the round”– Sometimes it really matters who else is the round because investors like to take a decision based on the pool of investors when they have doubts if the founder alone can take it to the scale required for future rounds. Some handholding and door opening might be required at relevant times.
• “Any existing commitments or potential leads” – If there is a strong lead investor, who has spent considerable time evaluating the business, space and team while committing substantial portion of the round, any incoming investor will have more confidence undoubtedly.
• “Keep me posted” – It simply means that, I would like to wait and watch as to how capably you can keep up with the numbers mentioned in your pitch and excel sheet with your ongoing operations. If you can sync your operational capabilities with your words, you will win a huge vote of confidence and trust over time.
• “Connect me to your lead / existing investors” – I have seen many founders using names of investors who might have had just one initial discussion but believe in using names as a potential investor. This can be big red flag as this early stage investing space works on trust. If you have already done a previous round, would like to understand why the existing investors believe this is a bet to make.
• “Would like to talk when you have more traction” – If you are doing what everyone is already doing in a crowded space with no differentiation, you got to show the investors how you will capture the market with your operational brilliance.
• “Would like to talk when you hit XYZ metrics” – It will be great if you can find investors trusting your vision before, but if you cannot then I will be more interested once you can hit these ‘reasonable’ XYZ metrics.
• “Consider joining an accelerator / incubator” – You probably do not have the necessary experience in terms of building/running/scaling a business and there are professionals who will give you money, advice and space to do the same.
• “Do not invest in convertibles” – The sheer paperwork, regulation, constraints of a CCD in India can be discouraging. Besides, I feel the startup community is maturing and we shall see more of this at a slightly later stage when the angel investing community swells with more faster and riskier investment decisions being made.

I would like to welcome the investing community to share their thoughts and add on to this reference guide for founders while approaching investors.