Continuing with the recent post The Tourist (Investors) are in Town, there’s another element that I’ve seen more lately: service providers as angel investors. Now, lawyers can’t invest due to a conflict of interest, but PR, marketing, commercial real estate, and other types of service providers can, and do, invest. In fact, there’s an angle with a number of service providers to invest cash in a startup with the expectation that an equivalent or greater amount of money will be spent with them.
Here are a few thoughts on service providers as angel investors:
- Angel investors, depending on the rights, will have information access and other types of data that you might not want a service provider to have
- If taking money from a service provider, it’s important to discuss long-term relationship expectations (e.g. if you take money from a commercial real estate broker, are you going to funnel all business to them indefinitely?)
- Decide on the value the service provider will provide by paying them their standard rate vs getting in much deeper and having them as an investor
The next time a service provider offers to invest, carefully separate out the value as an angel investor from that of a service provider, and try to keep the two items independent.
What else? What are some more thoughts on service providers as angel investors?