Today, we are answering the question, “what is the value-add of angel investors?” But first, let’s answer the question, “what are angel investors?”
What are Angel Investors?
For those that do not know, angel investors are typically the first people to write a check and invest in your company.
What is the Value-Add of Angel Investors?
There are a lot of great things about angel investors. Here are just a few of the value-adds:
- FIRST MONEY! Congrats You’re in Business
When an angel investor invests in your business, you have some money. You can buy some software, start programming, building hardware, whatever it is you need to do. You can also start paying yourself and paying employees. Angel investors get you into the business and for that, we should all be eternally grateful to our angel investors.
- Critique Your Product & Go-To-Market Strategy
There are some other great things about angel investors. First of all, they typically have expertise in what you are doing. Otherwise, who would be crazy enough to invest in your two slides, a PowerPoint, and an idea? Angel investors can often help critique your product or help you on a go-to-market strategy.
- Sometimes They Become Your Customers
Angels oftentimes are your target customers. This leads me to the next idea, which is sometimes, angel investors do pay you for what you are building and become your first customers. What a great moment there. Not only do they get to participate in the upside but they get to use the new, cool product that you are building that will change the world.
- Professionalize Your Company
Another thing that angel investors do is help professionalize your company. This means helping you do accurate financials and actually closing the books every month. It means making sure you are doing your tax compliance and making sure you are just doing the right things when you are running the company. For example, angel investors, or the good ones, demand a monthly email with an update on the company. This email can provide a lot of discipline and get you used to thinking through your metrics, thinking through your cash burn, thinking through the months left of cash you have, and when you need to fundraise next. In addition to all the business metrics, like sales and how many employees you have, etc. Angel investors are sometimes the ones doing the dirty work early on and getting the founders used to thinking that way, which is a big value-add.
- Help with Hiring
Angel investors can also help with hiring. Typically, angel investors have very deep networks and can oftentimes refer you over to your first few employees and that is big. Everyone is always excited about their idea and the company they are building but oftentimes, you figure out very quickly that it’s hard to recruit to a startup. People who are willing to work and help build your idea, really have to be captivated by what you are building and need a competitive salary, and so angel investors can help build those. Many times, they are an informal spokesperson for the company.
- Introduce You to Seed & Series A firms
The final thing that angel investors are good at doing is introducing you to Seed and Series A investors.
The cool way the startup investing world works is angels typically are in the company, the earliest but seed and series A investors build relationships with them. It is like a pipeline. And so they are constantly checking in with the best angels to see what the hot deals are, what are the best companies, the best founders. And then they’ll proactively reach out to those companies. But it all starts with the recommendation from the angel investor. So be nice to your angel investor. Professionalize your company so they have all the data to talk well about you and keep them in the loop. There is an old saying, when angel investors do not hear from a company for a few months, usually something’s going wrong. So stay in contact, even in the downtimes. It will help build your credibility and eventually, that’ll pay off with introductions to seed and Series A funds.
So these are all the things that angel investors can do for you. They are what makes the startup ecosystem go. I hope this helps explain the value-add of angel investors. As always, please email us if you have any questions.