What to expect from your Angels

I spent last week in the Valley and met a number of entrepreneurs that either recently raised $ or were in the process of raising. I won’t comment on the crazy valuations going on out west (that’s been covered already). Instead, I want to talk about an interesting phenomenon regarding high profile angels and the impact they can /  cannot have on your startup.

The Valley is blessed with a large pool of active angel investors. Angel list has made it even more active (there are 1,133 active angels on Angel list who invest in the Valley). Some you’ve never heard of, some you have because they are full time investors (think Ron Conway, Mike Maples, etc) and some you have because they have had prior entrepreneurial success (think Kevin Rose  of Digg, or Joshua Schacter Delicious).

It’s this latter group I want to focus on. I met so many entrepreneurs last week who talked about the huge impact these investors were going to have on their product / startup.  “So and so is going to help with UX, this guy has distribution experience so I want him in, that guy will help me fine tune my K factor.”

These were the types of comments I was hearing. While it is possible that these people could impact core areas like UX, distribution and virality I would not bet on it. It’s hard enough for full time investors who are paid to add value to their companies to actually spend enough time to meaningfully impact core operational areas. How can a part time investor who, in many cases, has his own startup, have such an impact?

Fine-tuning the user experience, building a repeatable viral loop, cracking the code on sustained, cost-effective distribution are all core elements of startup success and you need to be engaged on them full time. While your investors will definitely have some insights and suggestions, don’t think that just because someone has had past success they will swoop in sprinkle some angel dust and magically transform your product or traction. I just don’t think it’s possible.

This brings up another point: relying on someone’s past success and assuming that will translate to yours. Every situation is different. And every positive outcome has an element of timing and luck. The last thing you want is some headstrong angel saying “well at Acme.co we did this, so you should too“.  What worked at one company at one point in time does not automatically translate to your company today. The only way to figure out what will work for your company today is to be engaged in the trenches every day doing usability sessions, A/B testing, looking at your metrics and iterating, iterating, iterating. That’s your job and not something your investors are likely to do.

So what are more realistic expectations of your investors?

In order:

– Money

– Brand, network, more money: getting one known investor brings others

– Connections to help with follow on capital, hiring, business development

– A source of insights and suggestions for your role as leader, your product, company, etc.

If you get all this, then you’re cooking. But don’t expect your investors to be on the critical path on key areas of the business. Raise enough $ so you can hire for the core. Use your angels to help you in areas that leverage their large networks and don’t consume large amounts of their time.

  • A good reminder that past performance is an imperfect predictor of future performance. Excellent post.

  • SteveD-

    Very insightful and powerful post. At the end of the day the buck has to stop at the founders desk.