Angel investors put about $20 billion per year into businesses in the U.S., according to the University of New Hampshire’s Center for Venture Research. But when you’re starting a business, you want investors who have more than cash to contribute.
I’ve learned this the hard way, over the years of raising money for my businesses. When you’re starting out, your investors tend to be friends and family—your cousin, your college roommate. Though they want to support you, they aren’t necessarily sophisticated investors. They may or may not have run their own business.
And that’s okay. But in later stages, you can really help your company (and yourself) by being smart about who you bring on as an investor. Most importantly, make sure you have an operator on your team.
I mean someone who has run his or her own small business. Many investors have inherited their money or served as executives of large companies—and they definitely have assets to offer.
But sometimes, an investor who only has experience in big corporations will push advice that doesn’t make sense on a smaller scale.
A person who has operated a business—as opposed to just being part of one—understands the particular challenges of running a startup. They understand how risky it is and how all-consuming it is. They’re less likely to have out-of-whack expectations about returns.
Other qualities are important in investors, too. Maturity, for instance. You really need people who don’t have huge egos, who can coast through a storm with you. And ultimately, you want funders who trust you as an entrepreneur, because you’re at the heart of the company’s success.