How do I select angel investors? Is it a bad idea to ask my family?
Mark Fiorentino, principal at Index Ventures: Take a step back and think about your broader consortium of investors, whether that’s institutional or angel investors. There are many types of angel investors: those with a good brand name who do one or two investments each month; a large number of angels who compete with a lot of others to back up-and-coming founders; and founder-angels who are influential for a certain subset of your customers, or could be an influential customer themselves in the future.
You may also have your own contacts, friends and family, who just want to be supportive of what you’re doing. There’s nothing wrong with taking money from family or friends, but make sure they don’t take the place of someone who’s better connected or more experienced.
You need to evaluate angels in terms of your needs. It might be that you could benefit from that big-name angel to help raise awareness ahead of your next round. Or maybe you need someone with particular expertise to dedicate more time to you. They might be trying to build their reputation as an angel, and have a skillset that fills a gap on your founding team. For instance, you and your founders are more technically inclined, so you take on an angel who has early stage go-to-market savvy. There’s even a chance that the angel could convert into an actual hire in a future state!
More importantly, take a step back and think properly about who you want and need on your team. It’s very much about quality over quantity.
Nina Achadjian, partner at Index Ventures: Angel investing has become something of a social status in Silicon Valley, which means you get a lot of people who act more like stock pickers than actual angel investors.
So first of all, you need to clearly define what value they will bring to your company. Identify the skills you need on your team, whether that’s a designer, an engineer, or a sales person. Try and fill those early gaps with angel investors that have expertise in those areas. And finally, come up with a system each quarter where you identify three things you need them to help you with.
As for family members investing, it’s fine — but you should tell them that the chances of a pre-seed startup reaching an exit are very slim and that they should have no expectations. In other words, they should only invest what they can afford to lose.
- Take a step back & evaluate angels in terms of the gaps they could fill
- Come up with a system to identify three things you need angel investors to help you with each quarter
- When accepting money from family members, ensure they only invest what they can afford to lose
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