The relationship between an entrepreneur and their angel investors is much like
a marriage in which open communication is crucial for its success. This bond is
first established when the entrepreneur finds an angel investor to fund their business
endeavors. Entrepreneurs should propose a solid business plan, including marketing
and financial projections, amongst other things, to their potential investors. Angels
also like to look at an entrepreneurâs business experience and management skills,
which is very influential in their decision to invest. Once angels gain interest
and confidence in a particular business proposal, it is possible that entrepreneurs
can obtain angel dollars to finance their business.
Just as entrepreneurs should always choose their angel investors wisely and target
only those who have experience in their industry, angels should actively practice
due diligence to properly assess and validate the entrepreneur and their business
plans. Due diligence is probably the single most effective way that angels can avoid
bad investments. Likewise, entrepreneurs should be flexible in structuring their
business deal in order to meet their investorâs needs. In addition, an exit strategy
should be made, documenting the investorâs plan to sell or merge their investments
after their time frame within the company expires.
It is apparent that the relationship between the investor and entrepreneur does
not end once the requested capital is granted. This financial transaction is only
the beginning of a dynamic investor-entrepreneur relationship that is built on honesty,
trust, and open communication among both parties. How well an angel investor and
entrepreneur are able to communicate with each other often reflects the open terms
made prior to entering their business deal. Angels often do not want control of
the whole company. They usually seek an active day-to-day role in their investments
and give advice based on their knowledge and experience on how to improve the net
worth of the company to ensure its chances for success.
Effective communications between the entrepreneurs and angels are vital in achieving
a successful relationship. This should be established by both parties before and
after the financial negotiations are made. According to Bob Roy, Head of Venture
Capital, within the first 90 days following an investment, the investor and entrepreneur
must âbuild trust and work hard to keep it.â He also states that the first board
meeting should set a high standard, where the âagendas should be realistic, include
financial updates, send board materials in advance, and establish committees for
audit, compensation, and governance.â Roy strongly believes that every member of
the meeting should be encouraged to participate, including the management staff,
and communicate their ideals openly so that no misunderstandings or discrepancies
exist.
In order for investors to remain current on their companyâs status and growth, entrepreneurs
should provide weekly calls with honest updates on the companyâs performance. This
effective means of communication will allow angels to stay abreast of any financial
and operational issues regarding their investments. Entrepreneurs can also request
appropriate support from their investors, who can properly mentor them and provide
novel, strategic ways in improving their business. An angelsâ advice and expertise
in the field serves as an useful tool for the successful growth of a new company.
Angels can offer assistance in other areas where appropriate and may even be able
to provide additional funding if needed.
Entrepreneurs and investors should discuss and mutually agree upon the desired level
of investor involvement. It is crucial for both parties to have a working chemistry
with each other. They need to equally understand each of their roles in the investment
and be compatible with each othersâ principles. An angel investment is not simply
a sale where all parties walk away after closing a deal. Instead, this is only the
start to what will hopefully be a beautiful, professional partnership.