Why Angel Investors Are the Worst (Or Are They the Best?)
If you’ve recently attended pitch events or been around groups of angel investors, you’ve probably heard at least one startup founder complain about how frustrating the process can be. As both angel investors and as headhunters who recruit directly for startups, my Cofounder and I completely understand the exasperation that can come with pitching to angels. But, as with most things in business, behind every frustration there is an important lesson to be learned if you know where to look. Here are some of the most common complaints we hear about angel investors, along with our tips on how to adapt and thrive.
Angel investors ask unfair questions
It can be rough when you find yourself pitching an idea that you’re passionate about, only to find that potential investors are interested in everything except your idea and vision. We often hear founders complain “They only asked about my co-founding team; they didn’t ask a single question about the product!” Or some variation of “they kept harping on my projections and how I arrived at this exact valuation. They just don’t understand what we’re trying to do.” Basically you go in ready to sell the dream, and all they want to talk about is reality. This can throw even the most stalwart founder off-guard, and put them on the defensive.
However, when examined from the right perspective, these “unfair” questions can be incredibly valuable. It’s like being given a copy of a final exam before you have to take the test. Even more importantly, if you can separate yourself from your product and accept candid critique, angel investors can show you weaknesses that you didn’t realize were there. This not only prepares you to answer those questions better in future pitches, but this feedback can also result in a stronger team, product, and company overall.
They tell you your startup is not unique
Picture this scenario: using all the connections and goodwill in your current network, you land pitch meetings with a couple of angel investors. After you describe your idea, which you’ve toiled away on for 14-16 hours a day for the past several months, they reveal that your company is actually 1 of 10 stealth mode startups doing the same thing. We want to think that our idea is unique, revolutionary, and disruptive. But if there’s a problem that a lot of people have, then there are often a plethora of eager startups trying to solve that problem.
The silver lining is that the earlier you have this dose of reality, the better. There are very few companies that lack competitors. So this is an opportunity to realize that the business of growing your customer base and achieving profit at scale is as important, if not more so, than having a great idea. Plus, angel investors can sometimes bet on a team. If your presentation content and delivery are solid, your MVP is gaining traction, and you’re already planning to scale, you can appear as serious as you are passionate.
If you can’t explain it to me in 2 sentences, leave my office
A lot of times, angel investors simply lack the time to become professional level analysts of the industries that they invest in. They look for general business acumen and traction. Therefore, if they hear a lot of industry specific jargon, they may pass on a pitch early. Angel investors also might harp on things that you as a business owner might not think is important, or that you think people should already know. But that forces you to be able to communicate your value proposition simply. Being able to explain your product quickly and easily to someone who has never heard of it before can help attract future investors, employees, and most importantly: new customers.
Hands on Angel investors
Angel investors can negotiate like they have a billion dollar fund, even if they’re only putting in $25k or $50k. This can feel heavy handed to founders who were previously working with no oversight. But by the same token, good angel investors view their funding as a significant part of the company. That means they are more likely to support you by lending their own expertise because they’re giving you engaged money or smart money. In a way, they’re paying to give you some of their wisdom.
Tight knit community
The good news is: early investors can make warm intros for you if they respect you and think your idea is solid. However, a common fear is that your first impression has a much wider, and more potentially catastrophic, effect in this tight knit community. The way to deal with this fear is to always respect people’s time. Make your pitch as concise, simple, and logical as you can. Vet the pitch through mentors and people who have had successful exits. And finally, ask yourself: if someone came to you with this exact pitch, in this level of detail, with this strategy and product, and you had no other context, would you feel comfortable writing a check?