The Relationship between Angel Investor and Entrepreneur
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The relationship between an entrepreneur and their angel investors is much like a marriage in which open communication is crucial for its success. This bond is first established when the entrepreneur finds an angel investor to fund their business endeavors. Entrepreneurs should propose a solid business plan, including marketing and financial projections, amongst other things, to their potential investors. Angels also like to look at an entrepreneur’s business experience and management skills, which is very influential in their decision to invest. Once angels gain interest and confidence in a particular business proposal, it is possible that entrepreneurs can obtain angel dollars to finance their business.

Just as entrepreneurs should always choose their angel investors wisely and target only those who have experience in their industry, angels should actively practice due diligence to properly assess and validate the entrepreneur and their business plans. Due diligence is probably the single most effective way that angels can avoid bad investments. Likewise, entrepreneurs should be flexible in structuring their business deal in order to meet their investor’s needs. In addition, an exit strategy should be made, documenting the investor’s plan to sell or merge their investments after their time frame within the company expires.

It is apparent that the relationship between the investor and entrepreneur does not end once the requested capital is granted. This financial transaction is only the beginning of a dynamic investor-entrepreneur relationship that is built on honesty, trust, and open communication among both parties. How well an angel investor and entrepreneur are able to communicate with each other often reflects the open terms made prior to entering their business deal. Angels often do not want control of the whole company. They usually seek an active day-to-day role in their investments and give advice based on their knowledge and experience on how to improve the net worth of the company to ensure its chances for success.

Effective communications between the entrepreneurs and angels are vital in achieving a successful relationship. This should be established by both parties before and after the financial negotiations are made. According to Bob Roy, Head of Venture Capital, within the first 90 days following an investment, the investor and entrepreneur must “build trust and work hard to keep it.” He also states that the first board meeting should set a high standard, where the “agendas should be realistic, include financial updates, send board materials in advance, and establish committees for audit, compensation, and governance.” Roy strongly believes that every member of the meeting should be encouraged to participate, including the management staff, and communicate their ideals openly so that no misunderstandings or discrepancies exist.

In order for investors to remain current on their company’s status and growth, entrepreneurs should provide weekly calls with honest updates on the company’s performance. This effective means of communication will allow angels to stay abreast of any financial and operational issues regarding their investments. Entrepreneurs can also request appropriate support from their investors, who can properly mentor them and provide novel, strategic ways in improving their business. An angels’ advice and expertise in the field serves as an useful tool for the successful growth of a new company. Angels can offer assistance in other areas where appropriate and may even be able to provide additional funding if needed.

Entrepreneurs and investors should discuss and mutually agree upon the desired level of investor involvement. It is crucial for both parties to have a working chemistry with each other. They need to equally understand each of their roles in the investment and be compatible with each others’ principles. An angel investment is not simply a sale where all parties walk away after closing a deal. Instead, this is only the start to what will hopefully be a beautiful, professional partnership.

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