- So another type of investor that you'll run into very early on when you're raising money for your company is known as the angel investor. Angel investors are investors who regularly invest in early-stage companies, at the very beginning, oftentimes in rounds that are known as the seed, or even the pre-seed round. Many angel investors invest alongside friends and family, or the financing just right after you've gotten your business started and raised some money from friends and family. Lot of angel investors are successful entrepreneurs, or they could be high net worth individuals, people that have made a lot of money in other businesses.
In some cases, people who have inherited wealth, who are interested in being investors in early-stage tech companies. Angel investors are almost always investing with their own money, versus money that's from a fund that they've raised in some other way, although some angel investors turn into professional investors over time. Other angel investors invest through vehicles like something called AngelList, which is a network or marketplace that allows angel investors to invest together in a syndicate in companies. One of the things that's useful to know about angel investors is that they fall on a spectrum, where at one end of the spectrum, angel investors really are just providing capital, and at the other end of the spectrum, especially with experienced entrepreneurs, they're adding a lot to your business.
They're able to help you a lot in different ways beyond just the capital they're providing. The best angel investors are the ones that fall at the far end of that spectrum, where they're actually able to engage with your business and help you. It's also important for an angel investor to know the difference between being an angel and a devil. There are quite a few angel investors who are actually devils. They invest in the company, but they don't recognize that as an angel investor, what they're really trying to do is help the entrepreneurs be successful, and build value out of the gate, and instead, they start to act as though they control the company, or they influence the company, or, y'know, they feel like they have special rights that they shouldn't necessarily have.
So, as an entrepreneur, when you're raising money from angel investors, make sure that you actually do some research and do some diligence on the individuals, and understand what kinds of investments they've done, and how much experience they have, especially in the context of any of them who are starting to write larger checks. When an angel investor is investing $25,000 as part of a million dollar round, that's one dynamic, but if the angel investor is investing $500,000 of a $750,000 round, it's likely they're going to expect, and want to have a lot of influence on you and your company and the path it goes down, so make sure you understand what those dynamics are.
Last, a lot of times angel investors invest in one round, and then nothing beyond that. Some angel investors will continue to invest in future rounds, so it's really important to understand, when you raise money from an angel investor, what expectation to have around the type of financing strategy they have, and whether they're going to be there just for the financing they're doing, or whether they might be potentially a participant in future rounds down the road.
- Exploring potential stakeholders: friends, family, and more
- Finding a venture capital firm
- Breaking down the term sheet
- Taking on debt
- Asking for NDAs
- Accepting a no