Thoughts on startups by investors that
fund them & entrepreneurs that run them

What are some things that truly committed angel investors do for startups?

The ideal angel investor would spend a great deal of his/her time working on behalf of the company in support of the CEO, in every way other than being a full-time employee.

In addition to doing the kinds of things that anyone (employee, friend, parent, founder, etc.) could do (referring customers, tweeting out news, suggesting ideas, checking out competitive sites, pointing out relevant news articles, providing moral support, etc.) the best angels are good for the same categories of contributions that not-for-profit institution look for when recruiting board members: the Three Ws of WealthWork and Wisdom.

Although most novice angels (and, to be fair, many experienced ones as well) expect that they will write one check up-front, and then sit back until the IPO, in the large majority of cases the Real World™ intervenes, and additional funding is required. Typically, when this happens, there are not a lot of other sources of cash immediately at hand, so all eyes turn to the original angels. At this point, having an investor who does not have the Wealth (or a willingness to part with it) to double down, can be very disappointing.

When it comes to Work for the company, angels can be most productive with the types of contributions that they are uniquely able to provide. These could be skill-based, such as presentation coaching for the CEO, or helping write or revise the business plan. More typically, they are networked-based, with the angel offering to connect the startup with resources, partners, investors or acquirers that would otherwise fall outside the company’s reach. In fact, the first thing that Ron Conway does after making an investment is to give the new portfolio company a large binder containing the names of every person Ron knows in the industry, with the offer to make whatever introductions are needed. For the rest of us, LinkedIn can offer a good substitute :-).

Finally, when it comes to Wisdom, good angels can be worth their weight in gold, and great CEOs start taking advantage of this right away. The average serious angel in the US has over fifteen years of entrepreneurial experience, and has personally started two or three companies. As a result, angels can provide insights and experience that may be virtually impossible to obtain elsewhere. I know angels (and not ones who serve on the company’s board) who meet weekly with the CEO for executive coaching sessions. And others who facilitate off-site management meetings, provide a much-needed perspective from outside the company, or keep the entrepreneur focused appropriately on real world metrics and financials.

Of course, all of the above items are “some things” that truly committed angels do for startups. In the real world, an angel will not be successful unless he or she invests in literally dozens of startups. And it should be obvious that no human being can simultaneously do everything I’ve described for dozens of different entrepreneurs.

This means that realistically, a good angel investor will (1) intelligently understand the entrepreneur’s vision, (2) provide early stage funding based on that understanding and faith in the entrepreneur, (3) respond quickly whenever approached by the entrepreneur, both before and after the investment, (4) try to not get in the way or be a pain in the ass, (5) reserve at least some additional cash to re-up during on a follow-on round if appropriate, (6) do some or all of things in the second paragraph (referrals, spreading the word, etc.), and (7) do at least someof the things I’ve listed under the Three Ws.

If you have an angel who does (1)—(7), you are a very lucky entrepreneur, and have found an investor who is “truly committed”.

*original post can be found on Quora @ http://www.quora.com/David-S-Rose/answers *

Written by David S. Rose

user David S. Rose Founder and CEO,
Gust

David has been described as "the Father of Angel Investing in New York" by Crain's New York Business, & a "world conquering entrepreneur" by BusinessWeek. He is a serial entrepreneur & Inc 500 CEO who chairs New York Angels, one of the most active angel investment groups. David is also CEO of Gust.

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