When talking to entrepreneurs that are out raising an angel round, I encourage them to figure out the true motivations of potential angel investors. At first glance, it’s easy to think that they’re motivated by the most common thing: money. While this is often the case, there’s often more nuance and variety to unpack. And, even on the money side, there are different expectations. Let’s see some examples.
Tourists in Town
First-time angel investors that write a few checks while times are good, and leave just as fast as they came, are the most common. This type is looking for a quick win and has a short time horizon and not enough deal volume resulting in poor outcomes. Be careful with the tourists.
Several years ago I was talking to a potential first-time angel investor and I asked him his investing goals. He said he’d like to invest 1-3% of his savings into startups with the potential to have an income stream that would replace his existing income. Doing some basic math, he was interested in a lottery ticket-like outcome. Not impossible, but highly improbable. Make sure proper expectations are set when there are lofty goals.
Stay in the Game
After selling a startup and sailing off into the sunset, it’s easy to get antsy and bored. One of the best ways to stay in the game without any responsibility is angel investing. The investor enjoys providing guidance and mentorship. The entrepreneur likes the cash and advice. Win win.
Want a Job
Back in the Pardot days I was referred to a potential angel investor. I gave my pitch and made the ask: will you invest? This potential angel said he was interested, and that any money he’d invest would be done so under the condition that he’s hired as a consultant and paid the amount he’d invested. Pass.
Pay it Forward
I know an ultra successful angel that invests simply to pay it forward to the next generation of entrepreneurs. He invests exclusively based on email: no pitches, no phone calls, no Zoom meetings, no reference checks, nothing. A few emails back and forth and it’s a go/no-go.
Not all angel investors are motivated by money. Work to find out the true motivations of potential investors and you might be surprised by what you learn. All money is green but it isn’t all equal.