Getting investors for your startup is a great news. But, a wrong investor can ruin your startup to the extent that you cannot get it back to normal. There are several stories of startup shut down because of an unhealthy founder-investor relationship. It is very crucial to seek the right investors in order to take your startup to the next progressive level. Though the topic says “8 Top Qualities To Look For In An An Angel Investor”, the points I discuss here not only discuss the qualities of an angel investor but qualities of any other form of investors ( say, Family & Friends, Angels, Venture Capitalists, etc. ).
Here is the list of those 8 qualities of an angel investor (or any other form of investors):
- Investors should be financially very strong
- Investors should have incredible domain expertise
- Investors should a strong network
- Investors should have a high degree of patience
- Investors should be trustworthy
- Investors should have a high level of integrity
- Investors should have quick decision-making skills
- Investors should enjoy working with entrepreneurs
Let me explain every qualities of an angel in detail one by one:
1. Financially Very Strong
One of the topmost qualities of an angel is to financially very strong. If your investor is not financially strong and depends solely on the success of your startup, then, the investor is under stress. And therefore, a financially tight investor pressurizes you every now and then to show progress which might drastically hinder your productivity. Your startup should not get invested to get pressurized. That was not the whole idea for why you were looking out for investments.
A financially strong investor will give entrepreneurs a measured timeframe to achieve progress and should not mind going for another round of funding of his or her own.
[ Note: Before getting involved with an investor you should try finding answers to these questions yourself:
- What is the experience of the investor in startup investing space?
- In how many companies have the investor invested before and what is the success rate?
- What are other entrepreneurs opinion about this investor?
- How much money is left with the investor for startup funding?
- Is our startup the only hope for this investor?
Answers for all these questions will make you associate with an investor in a smart way. ]
2. Incredible Domain Expertise
This should definitely be the second among all the qualities of an angel investor. You will have a tough ride with investors who come on board of your startup with just money and no domain expertise. The problem is – they do not understand the dynamics of your business vertical. Instead, having an investor who has incredible domain expertise will help your startup cross hurdles very fast. Their advice could be in the form of either a general business idea or domain-specific idea. Whichever it is, will help you commit fewer mistakes and grow faster.
For example, if you have an e-commerce startup, then, while choosing investors to make sure you choose someone who has a prior experience in e-commerce industry (in the management role) or some industry vertical that is closely related to e-commerce. Domain experts can help build a sales program and hire salespeople with their eyes closed. This is just an example. They can do much more. At least, you should look for investors who had a prior experience of investing in an e-commerce startup.
[ Note: Before getting involved with an investor you should try finding answers for this question yourself – “How can this investor help me when we face with a domain specific problem? Does he bring in additional expertise along with investment ?” ]
3. Strong Network / Connections
This should be the core characteristics of every angel investor. A single investor with a high degree of connections and network is worth several investors. As startup founders, while you face any sort of problem, such investors can guide you to the right people to get things sorted. Also, your startup can gain more publicity through those highly connected individuals. They make other investors look at your startup as a savvy opportunity.
Investors with the strong network will speak about your startup to other potential investors which makes way for additional funding rounds through your investor’s network. Strong connections are the one of the best value that you can ask for from an investor for your startup. For example, one of the prime qualities of an angel investor should be to connect with other angels through angel groups or accredited investor/investment platforms for deal flow and learning that helps his/her associated startups.
[Note: Before getting involved with an investor you should try finding answers for this question yourself – “To whom can he introduce us to help our startup grow fast and quick? Can he help us get more publicity and additional funding ?” ]
4. High Degree Of Patience
When the business grows organically, you will yield sustained success. Rather, if you try all tactics and gimmicks to make growth inorganic, your startup is for sure for a toss. Beware of such greedy investors who wish to make money overnight – And your startup is their way to make it.
During your meeting with an investor, if “early exit” is the only point your investor emphasize, then, you should give a second thought about associating with such investors. They can make your startup life miserable.
Getting associated with an investor with a high degree of patience is a blessing. A patient investor understands the dynamics of startup businesses and is matured enough to understand the fact that the profits do not start rolling overnight. They know to see the bigger picture of your startup and clearly understand the struggle that every startup has to go through until they see profits. An ideal investor should wait for a minimum of 6 – 8 years to seeks profits.
[ Note: Before getting involved with an investor you should try finding answers for this question yourself – “Is my investor interested only in the early exit or does he even care about organic company growth ?” ]
We had stories of several startup founders stepping down from their own company for reason that they did not have trustworthy investors. Your startup has to be invested by a trustworthy investor. Not someone who may create problems for you and your startup later by using the privileged information against you. There is a history of investors investing in multiple startups competing against each other and investors play a safe role by tilting themselves towards the one making more progress abandoning the rest. Also, such investors can make use of your startup ’s proprietary information to fuel the success of progress-making competitor to make quick money through early exits.
Look for investors who can work with you and your startup for a longer time and be with you during tough times. Make sure you do not approach investors who have already invested in your competitor startups. A trustworthy investor builds trust with other investors and organizations, to allow syndication and follow-on funding.
[ Note: Before getting involved with an investor you should try finding answers for this question yourself – “Does my investor ask for more ownership in exchange for money? Or Does my investor try to replace me anytime ?” ]
6. High Level Of Integrity
You might end up in a state where you can never ever get back after having a great fall as a result of associating with people having no values. The foundation of every successful company is built on core values. You are none other than the kind of friends you make. So be careful.
An investor with a high level of integrity avoids conflicts of interest of any sort and presses founders and other investors to follow a code of conduct. You can easily make out people with high level of integrity. They speak of values, they do not vouch for any short-cuts overlooking legalities. They go thorough due diligence while making a decision in a timely manner. In short, their preliminary concern will be to avoid getting into legal issues and want things and documents formed in accordance with the law.
Even If you get the slightest sense of wrongdoings either from investors or employees, take charge and take control. Because getting even a little bit dirty can lead to quick downward spiral which in turn can lead to permanent irreversible damage.
[ Note: Before getting involved with an investor you should try finding answers for this question yourself – “What values better describe this investor? What others speak about this investor ?” ]
7. Good Decision-Making Skills
An investor with a good decision-making skill knows how to give a straightforward verdict to the founder’s problem or suggestion. Good decision-making skills of an angel investor help avoid unnecessary delay in the startup progress. Experience investors understand the problem of founders waiting for their approvals for every nitty-gritty issues. As good decision-making skills come through experience, I suggest you look for investors who have expertise in your domain. They know the perfect timing to say “Yes” or “No” for a particular deal.
[ Note: By speaking to your investors you can automatically realize the decision-making skills of an investor ” ]
8. Enjoys Working With Entrepreneurs
Though the last, this is not least in the set of qualities of an angel investor. A great investor love to see budding entrepreneurs grow. Their intention is not just to make money, rather make a difference to the society using entrepreneurs as a tool. They value deep respect for both the entrepreneurs and their journey. Great investors are always willing to help entrepreneurs and other investors. They do not dictate, rather, mentor and push entrepreneurs to go through realistic challenges and guide them to overcome those. They try to bring out the best in the founders.
They help startup founders understand the competitive arena and market, identifying ways to become a market leader. They are always available for founder’s concerns during hiring, firing and raising further rounds of funding. End of the day a great angel investors finds fun in being an angel and enjoys working with entrepreneurs at every stage of their entrepreneurial journey.
[ Note: Before getting involved with an investor you should try finding answers for this question yourself “What earlier contributions has this investor made to the entrepreneur community?” ]
I hope you enjoyed and same time learned a lot while reading this blog post on “8 Top Qualities Of An Angel Investor (Or Venture Capitalists)”. Please feel free to comment your opinion on the same.
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