The blog post below is courtesy of The Capital Network. Thanks TCN!
How Angels Can Make Your Company Better (Without Giving You Money)
Angel investors can be a Godsend…and not just because they can help fund your business. When we founded Mosaic, I spent a lot of time meeting with Angel investors and telling then about how my company helps photographer’s better access and store their photos. I did too much telling and not enough listening.
I was in full sales mode. I believed it was my job to convince them that Mosaic was a great investment and that together we were going to make boatloads of money. That was part of my job. But an even bigger part of my job was actually building Mosaic into a successful company.
Angel investors are really smart. A lot of them got their wings by building businesses themselves. They also get thrown more pitches than Kevin Youkilis.
I believe you should ask them for advice first and money second. If you start to hear the same types of questions from the investors, you have two options. 1) Go out and do research on the question and come back with answers. Ask them if this new data satisfies their question and if not what data would. 2) If the answer to their question isn’t good, then it is time to think about a pivot.
A pivot isn’t a bad thing. If you listened to your advisors early at the very least it will save you from a lot of wasted energy and resources. As a startup by definition you are trying to do a lot with few resources – so waste is evil. It might even save your business.
Balance your gut with what investors say. Be a harsh critic of your answers before you give them to potential investors. If you aren’t satisfied with your own answers to questions, neither will potential investors.
It is easy to get lazy with answers as being good enough. Quickly identify your startups fundamental business assumptions and figure out how you can test these assumptions as quickly (and cheaply) as possible. Angels bullshit meters are remarkably well tuned.
There is no right way to do any of this stuff. If you ask 20 Angel investors the same question, you will get 20 answers. The trick is to listen to all of them and figure out the right path for your business.
In this way, Angels are very similar to customers. Remarkably, investors and customers were giving us similar advice; it took us too long to realize this. Once we did, Mosaic started gaining customers more quickly and we had better luck with investors.
We were blessed with great mentors (many from The Capital Network) like Ben Littauer who saw our potential and worked with us to build a stronger business. (And yes, he ultimately invested.)
Ultimately if you listened to the investors needs and answered their questions, they will invest. I would rather err on the side of treating potential investors too much as advisors than too little. This might even slow down your fundraising efforts.
But even if those Angels don’t invest, you will have gained a lot.