Monday, November 06, 2006

Angels Investors are Human Too

Tonight I had an enjoyable dinner with Chris and Brock before Brock and I did a little guest appearance in Chris' entrepreneurship class at Westminster College. Chris must be inspiring his students -- they were all well-prepared with thoughtful questions and insights.

Because of time issues, we were unable to fully cover a very important element of raising angel capital -- the human element.

Angels vs. VCs

VCs have a strict fiduciary responsibility to their partners that -- unless you're Tim Draper, John Doerr, or Mike Moritz --leaves very little room for "gut instinct" investments. With few exceptions, VCs have to invest in proven companies with proven models or they risk disappointing their LPs and disappearing when it comes time to raise the next fund.

Angels, on the other hand, can be influenced by several factors in addition to their desire to make a good return on their investments. Here are three of them:

Moral obligations -- I once heard a prominent angel investor here in Utah say that his angel group decided to invest in a company because "the company deserved to exist". Translation: The company stood for something they all suported. Before you pitch to an angel, do your homework and find out what, if any, moral/religious causes he supports. If you can show angels how your company promotes their cause, you'll be in good shape.

I'm not encouraging anyone to take advantage of anyone's moral convictions. I'm just saying that you should do your homework before you pitch so you know which angels would make the best match for your company.

Peer pressure
-- Frank Peters, an active member of the Tech Coast Angels, has confessed that he has closed his eyes and signed checks for companies simply because he trusted the other angels involved.

Part of this is the old "jockey and not the horse" philosophy applied to angel investing. Another part is something I've seen in many angel groups: If one or two influential angels in a group get behind your deal, odds are that a few others will follow for no other reason than they don't want to look stupid.

Personal interests -- A widget company posted a business plan on for several months and received no contact or interest from angels until an angel who had used the widget in one of his favorite leisure activities got a look at the plan. A short time later the widget company was featured in the angel's angel group meeting.

The motives of angel investors vary from person to person. But if you do your homework and learn about the hidden forces that influence your angel's decision-making process, you'll find yourself in a much better position to raise money from them.


Anonymous jeff barson said...

Glad to see you posting again Jeff.

12:57 PM  
Anonymous chris said...


Thanks for the great class on Monday night!

3:22 PM  

Post a Comment

<< Home