Angels Should Mentor, Not Just Provide Cash
Tech entrepreneurs need mentors. No one questions that. But few consider the idea that angel investors – in addition to providing money – can offer coaching and advice. According to Brian S. Cohen, chairman of New York Angels and co-author of What Every Angel Investor Wants You to Know: An Insider Reveals How to Get Smart Funding for Your Billion Dollar Idea,” entrepreneurs should seek out angels who can provide tech and business expertise. Having been both an entrepreneur and an angel, Cohen says that what entrepreneurs need to know is that not all angel investors are equipped to do that.
It’s your responsibility to vet investors just as much as investors will vet you, says Cohen. “It’s important to find financial people or entrepreneurs who have knowledge in a vertical industry. The best angels are the ones who can open doors.” He recommends looking for angels who are enthusiastic about your business and ready to offer assistance, not just the ones who are looking for a quick exit strategy. “You want investors willing and able to sit on the sidelines and help, and not just the investors looking for the money at the end of the rainbow,” he says.
Finding an Angel
Cohen believes that the best way to find the right investor is to tap into networks of angels. “They can be the devil’s advocate. They don’t make themselves hard to find. Just Google them,” he says. “The best of the best are very visible.”
He also says that tech entrepreneurs need to look for investors who will ask tough questions about their business. “You should put the investor in a tough position. Ask them what excites them about your business. That puts the entrepreneur in the strongest position.”
The angel should understand the customer base and business challenges, and the entrepreneur has to know about the angel’s expertise, connections and number of investments. Cohen also says to ask how much time they’re willing to devote to your company. But be realistic and wary. “Many will overpromise because they get excited at the moment and want in on the deal,” he warns.
The Company Perspective
Katie Palencsar, CEO and founder of Washington, D.C.-based Unbound Concepts, agrees with Cohen. She notes that tech entrepreneurs have to think of the relationship with an angel investor as an advisory and networking opportunity, not just a money transaction. Her company received an extra boost by getting connections to angel investors with industry experience through ACTiVATE, an entrepreneurship training program focused on teaching women with technical or business experience to create technology companies. “We’ve since raised an angel round, and I’ve benefitted from a tremendous network of mentors,” she says. The ACTiVATE program certainly helped Palencsar get investors, but the angel investors took the process beyond that, she says.
The Post-Funding Process
The mentoring process was even more critical post-funding, Palencsar says. “We looked for angel investors who could provide more than capital. Not that we aren’t grateful for capital, of course.” But she considered the selection a “strategic” decision for her company, which matches appropriate books to readers. One of her angel investors had ties to publishing, while another angel with industry expertise took an operational role at the company. She believes that was particularly critical in helping the business hit the ground running. “He had seen the iterations of the company, and it was a big vote of confidence,” Palencsar says.
Despite the expertise that an angel investor can offer, Cohen is a bit critical of the word “mentor.” At the end of the day, he maintains, you have to know how much an angel can really do. “Often they are more tactical and not as strategic in their thinking as you want them to be,” Cohen says. “It’s really about being an advisor. Advice is helpful, but it’s the entrepreneur’s responsibility to make it work.”
He tells tech entrepreneurs to learn how to manage investors to get the most out of them. “They’re a resource. But you have to be in control of your startup.”