Angel investors, or wealthy individuals who invest their own money, are typically a company’s first source of financing. They invest for a variety of reasons, but most of the time it’s because they want to give back and help up-and-coming entrepreneurs. Altruism aside, they also want a return on their investment. Because they want to help, they’ll probably be active in your company’s day-to-day operations. There are three types of angel investors, and you should pursue them in the following order.
- Serial entrepreneur, startup expert
- Industry veteran, expert in your market
- Unsophisticated, with little business experience
Ideally, your investor is both (1) and (2) – a serial entrepreneur with a lot of industry experience. An angel with a lot of startup experience will know how to roll with the startup punches, so he or she will understand when things go wrong. If you can’t find a serial entrepreneur, the next best thing is someone who understands the industry pitfalls, and has a robust network that you can call on for help. Unsophisticated angels who have never built a business before, or don’t understand business, can be more trouble than they’re worth. Other than the money, they add little value. It’s best to avoid these kinds of investors.
Your angel investors will be hands-on in your business, so make sure it’s a good long-term fit.