This year isn’t like the last or even like 2014, when there was a lot of easy money and fund raising was easy (especially if you belonged to IITs/reputed institutions). Having said that, money is at a premium now and it’s all the more important for founders to ask tough questions to angel investors.
During the early days of a start-up, things are quite hazy and angel investors do play an important role in defining the company’s focus and future. As a founder, it’s really important to ensure that you choose the right angel — not just for money, but for the value they bring to the table.
Referrals:
Founders should ask investors for referrals and/or introductions to companies he/she has invested in. This will help you collect feedback about the investors from his/her portfolio. What value does the investor bring? Is he/she just media hype? Did the investor opened up his/her rolodex to the portfolio companies?
Talk to failed start-ups the investor has invested in:
There is no better way to gauge the investor-founder equation than by talking to failed startups he/she had invested in. How was the equation like when the founder told the investor about shutting down? How did the investor handle the decision?
Some of the angel investors I know have gone too cheap and asked founders to return the money and if the founder was not able to do so, the investors have threatened a police case. Do you really want to work with such investors who would not support you during the bad times?
Level of involvement:
How deep is the investor involved with his/her portfolio companies? Remember that the most helpful angel investors are the busiest but their level of involvement with portfolio company will also help you set your expectation going forward. As a founder, it’s important to understand that the angel investor isn’t going to be a solution-to-all, but you should know when to reach out to the angel under specific context.
Help with next round:
Is the angel investor going to be one massive help in raising the ‘Series A’ round? It’s okay if the angel cannot help with great connections — but as a founder, you should know this. Also, do check for the angel reputation. For instance, few institutional funds do not like to even touch companies who have raised funding from particular angel investors — largely because these angels are known to take a lot of equity and investors don’t see it as a great sign (hence have a blanket ban on such investors’ portfolio).
Why invest in your startup:
Last but not the least, ask them why they are angel investors. Is it for earning massive RoI? Fame? Glory? There is no right answer here but it will just help setting the right expectation.
In a nutshell, the angel-founder equation is largely a relationship of partnership and as a founder, I would definitely suggest you to think deep on who you are bringing onboard and the value they bring to the table. If you are not sure, it’s better to talk to other angel investors rather than take a wrong decision. You just can’t afford a *demonic* angel in the early stage of your start-up.