When you need to raise funds, you will often need to approach multiple angel investors to fund your seed stage round. Because angels usually have limited personal funds, they have to band together in order to meet your requirements. This means you will need to talk to 10 or more angels at one time, to convince them to give you the money you need, because one may not have the capacity to be able to fund you.
As with everything in life, this has its pros and cons. Many heads are often better than one, and each angel brings his own network along with him when he invests in your company. He will share his industry perspective and domain expertise; and will be able to connect you to lots of people within the ecosystem, because most angel investors stick to a space in which they have some experience. However, you still need to work on them one at a time, because if one person signs on, the others are much more willing to follow his lead as well. After all, most investors indulge in groupthink, because they are human too.
When you have many angels, they bring multiple different perspectives, and this gives you the chance to listen to lots of sensible voices, and then pick and choose what you think works well for your startup. In one sense, your angel investors are paying for the privilege of mentoring you. Their advice is often sound because they have skin in the game.
However, the downside is that every time you need documentation (for example, when you need to raise your next round), you will need to talk to multiple different people. This can consume a lot of your time, because most angel investors are quite idiosyncratic, and have their opinion about how you should be running your company. They will often not agree with you – or with each other either!
They will want things done in a particular way, which means you need to justify your actions to them, and this can create a lot of bad blood and angst, especially when things aren’t going well. This is one of the downsides of having to have to deal with many people on your cap table.
The good news is there are lots of tools available to help you manage a group of investors. This is one of the big advantages of dealing with established angel networks, because they have got their act together, and have well-defined processes which run smoothly.
Ideally, you should get your investors to act as a syndicate, so that there is one voice who speaks for all of them. This way they behave as a team, rather than pull you in many opposite directions! You then need to speak to just one person – the lead – who can then interface with the rest of the investors on your behalf. This will make your life much easier. Angel investors prefer this as well, as the lead is someone they trust, and he is taking responsibility for managing their investment in your startup.
[This post by Dr. Aniruddha Malpani first appeared on LinkedIn and has been reproduced with permission.]
