It has often been said that experience makes the perfect teacher. This sentiment holds true for investors as well. Investors learn from previous dealings, be it good or bad. Investors also learn how to navigate through deals based on their previous experience as entrepreneurs themselves. As stated by Angel CL, “…If there is a general judgement that I bring to everything I do, it’s the fact that I have spent so much time building businesses and starting businesses. I look at the business idea from the point of view of someone who understands…”. Whether the investor has previous entrepreneurial experience or not, angels support start-ups by focusing on value events. These value events have fundamental impact on the real or perceived value of the business (Amis & Stevenson, 2001). The approach and roles that investors play in dealing with value events and the deal itself will vary.
Although angels may already have a pre-existing role, their role may change. The most common participation roles are: silent investor, reserve force, team member, coach, controlling investor, or lead investor. A quick overview of these fundamental roles can be found below:
- Silent Investor- This investor will not take an active interest in the company, other than signing papers.
- Reserve force- These investors are willing and readily available to assist as requested by the entrepreneur. The impact of their efforts is based on contacts and relevant skills as well as being called at the right time.
- Team member- This investor works in the company with particular projects or certain areas. There is a risk of micro-managing by the investor if they have a high stake or majority interest in the venture.
- Coach- This investor could arguably have the highest impact as they do not control the company. This holds rue even if the investor may have control in certain cases as they still choose not to exercise this power.
- Controlling investor- This investor has high impact. They essentially become the entrepreneur by taking control and managing the company.
- Lead investor- Controlling and coaching angels can be viewed as lead investors in their deals. Essentially any angel can play this role.
All in all, investors should try to contribute in the most effective way possible within the confines of their role. This often correlates to the start-up stage of company development and the capability of the entrepreneur (Amis & Stevenson, 2001). Success in a supporting role can create a better experience throughout the duration of the deal. It can also lead to a better harvest and ultimately a stronger partnership.
Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.
I agree with you that the investors should try to contribute in the most effective way possible within the confines of their role. It should make sense that if the investor gets a nice deal and a good share they should participate and be concerned with the company’s performance and entrepreneur’s ability to run it. After all, if the company goes under there would be no benefits to harvest. Everyone should do their part.
Great post Shay,
I think that supporting ties greatly to the sourcing and evaluating sections in that the angel will align the investment with their overall strategy. Its always a good idea to be very clear on the roles that each will play but I do think that if situations change post deal then many experienced angels are in a better place to support where needed and compared to their strengths if they aligned properly early in the deal making.
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