Surreal Entrepreneur

While discussing the negotiation and structure of the deals you strike up with an Angel Investor concerning how the shares will be divided and how they will be monetized, we also discussed what value you are placing on the relationship between you and that angel. This perspective is tantamount to this weeks discussion. We are going to look at what other things the angel can contribute besides just money.

While the angel has a very important part of your start up funding they also may posses other characteristics and expertise that you can tap into. Most angels come complete with a list of other qualities that you need to investigate:

• Network of other professionals
• Managerial experience
• Entrepreneurial experience

You truly need to gauge the amount of help that the person will be able to offer you in your specific company and then remember to reward them for their help. Most entrepreneurs will underestimate the amount of help that an Angel investor will be willing to give, beyond simply financial support. Also on the other hand to this perspective you need to remember that it is your business and you don’t need to have another person pointing the company in a direction that doesn’t sync up with the basic values of the company and it’s owners. So being able to slowly integrate the angel into leadership roles is a smart plan, allowing them to understand that it is your company and they are there as mainly a financier and a mentor when needed.

Your business might need the initial Angel Investors for later rounds of financing so remember that no matter what, you must keep a friendly relationship with your investors unless you are truly not interested in continuing to work with them again. However, expect every angel relationship to be a long partnership and not just a fleeting financing and dismissal. If they took interest in your initial movements they will most likely want to watch your company for a long time, most likely until your exit.

In the early stages of starting your business you will need to create a contract with an Angel Investor concerning what monetary support they will provide you with in exchange for what form and amount of profit they will gain from your company. This part is crucial because it is the first chance the angel has to see what kind of relationship you value them at. If you propose terms that are way too low on the reward scale they will think you are low-balling them and your investor could be lost if not second round investment opportunities at a minimum. However if you propose terms that are way too high on the reward scale then your not properly rewarding your own efforts in your company and your piece of the pie has just become smaller.

So when coming up with a structure (as we talked about last post) think about giving as truthful as a demand right off the bat. Most of these Angel Investors have more experience than you do with start up companies and will be able to tell when you are undervaluing their help. But also they most likely do not want to haggle with you on the details, so having a well researched and well thought out structural proposal can ensure that an Angel sticks around to help you with initial financing and maybe even financing in further rounds.

All this being said, there may be a time when you give your original and truthful proposal and you are still forced into a negotiation. This is dangerous territory to tread into, but by successfully negotiating you allow yourself an open door to ask for funding later down the road and you have shares to be able to offer them. Also by starting with a truthful proposal you know that you have done your part to meet them half way and that also means that if they are unwilling to yield you can walk out knowing you gave them the best deal that you could without hurting your future potential.