The other day I was talking to a small business owner who had some family and friends with a little money. His new idea and invention for his next company is relatively solid, but it is a disruptive technology. He also has a friend who is an angel investor and some friends who are venture capitalists, so we have sources of capital to make this work. He wonders which group he should borrow the money from because it doesn’t seem like he can go to a local bank and get the money he needs to build his business. Okay, so let’s talk and let me explain the scenario here.
The angel investor has a bit of experience in the industry, but my entrepreneur friend is going to be a disruptor technology and may not sit very well with many of the people in the Industry Association. However, this potential angel investor has an incredible amount of knowledge and background and could help break into the industry, and has many potential supplier contacts and potential corporate partners as clients. The angel investor not only wants to stay on the sidelines, they would also like to use their experience and help build the company.
In other words, my entrepreneurial friend will get free mentoring, consulting and coaching services along with the investment. In many ways, if you were to hire that level of expertise, it would cost you a pretty penny, but in this case, you basically get a free partner, someone to go to and help you get over the hump. Perhaps the question is; Will this angel investor slow you down in the market or help you succeed? The reason I ask that is because the angel can be used to do things the old way, not the new way. Still, the entrepreneur needs to have the capital to start the business.
If you accept the venture capital money, you’ll have to give up a large part of the company, and you’re a little worried about borrowing money from friends and family because of a previous deal that didn’t go so well. The above business did it, and it made them all rich. So what should I do? Should you take some money from your friends and family, but not enough to really hurt them in the event of failure, and take the rest of the angel investor who will also be on your executive management team, if only part-time since is he a retired gentleman? These are all good questions.
These are things entrepreneurs should consider when building their business or seeking startup capital. There is an advantage to having an angel investor who doesn’t just want to sit on the sidelines and have some monetary interest. Of course, if he’s using his money, it’s possible that he might become somewhat dictatorial in the future. As long as the personalities match, and the two can work together, this could be a match made in heaven, or have unfortunate consequences that lead to hell. In fact, I hope you will please consider all this and think about it.