There is no "set it and forget it" strategy in angel investing – or at least it might not be the best strategy to follow. The best way investors can help their investments succeed is by taking an active, hands-on approach and getting in the trenches with the startups they invest in. In this article, we'll explore why being an "actively involved" angel investor is rewarding for both investors and startups. If you’re ready to become a startup game-changer – or are looking to leverage the full potential of your angel investors – read on!
Angel investing is not for the faint of heart. Compared to “traditional” investing, there is more risk, higher rewards, and longer commitment involved. And speaking of involved, investors are often more involved in the companies they invest in – by sharing their expertise, network, or other types of value. This also means that investors can significantly impact the startup’s success by shaping the direction or values of the company or giving the right boost at the right moment on the path to success.
5 non-monetary ways angel investors can provide value to startups
- Mentoring and advising: Investors can provide valuable guidance and advice to the founders, helping them navigate the challenges of growing a business.
- Network and connections: Investors often have a wide network of contacts in the industry, which can help startups find new customers, partners, or employees.
- Industry expertise: Investors with specific expertise or experience in the startup's field can help with business development, product development, marketing, or other areas.
- Board representation: Investors may be appointed to the board of directors, providing oversight and guidance to the management team.
- Recruiting: Investors can use their experience and network to help the startup recruit top talent.
Many angel investors are also sought-after mentors and advisors on a wide range of topics crucial for startups’ success. For example, LinkedIn co-founder Reid Hoffman is a well-known angel investor who has invested in companies such as Airbnb, Dropbox, and Instacart. He is known for his vast network in the tech industry, as well as his strong background in marketing and product development.
Peter Thiel, the co-founder of PayPal is an accomplished entrepreneur and angel investor who has invested in companies such as Facebook and Palantir. As a successful entrepreneur himself, he has extensive knowledge to share about building a successful company, hiring the right people, creating a company culture, and scaling the business. He’s also well known for his strategic thinking and tech background.
But how to know, which type of help to offer startups and when?
This calls for some honest introspection and open dialogue with the startup. Firstly, investors can assess their own strengths, skills, and experiences, as well as the startup’s industry, to identify the areas where they can support the startup. It's important for investors to be realistic and honest about what support or input they can offer and in which capacity.
Also, the investors can just ask the startup's management team what type of contribution they need the most (besides funding, of course). Not all startups need the same type of support and it greatly varies depending on the stage, industry, founding team, and other characteristics of the startup.
Startups need different help in different stages
Startups’ needs change and evolve as the company matures. Knowing these needs helps investors provide the right support at the right time.
- Early-stage startups may need help with product development, business planning, and fundraising.
- Growth-stage startups may need help with scaling their operations, expanding into new markets, and building out their management teams.
- Late-stage startups may need help with exit strategies, such as preparing for an IPO or a strategic acquisition.
Should this affect the way investors pick startups to invest in?
Yes, investors should consider the additional value they can offer a startup when picking investments. For the most obvious reason, it’s good for business. Helping startups overcome challenges or navigate a tricky industry, increases the chances of the startup's success. Ultimately, this can lead to a better return on the investment for the investor.
Additionally, the investor is more likely to form a strong partnership with the startup. This can lead to more effective communication and collaboration, and an overall more successful working relationship for both parties. And finally, over time the investors can accumulate valuable first-hand experience with different founders and startups and use this to make even better investment choices.
Should this affect the way startups pick their investors?
Startups should absolutely make sure the investors are the right fit for their company. Angel investors are so much more than just a way to get funding. Finding investors truly invested in your success can make or break a company, and partnering with high-calibre investors can be well worth giving up more equity.
A big part of a startup’s success is not its initial idea or the founding team, but the advice, network, and other resources available to them to realize its full potential. Being strategic about finding investors and getting help with connections, business development, recruitment, and strategic advice, can be an invaluable part of the company’s long-term success.