Got a general question for people. And sorry in advance to steal your attention from the epic thread. Basically, if you were an Angel Investor in a start-up, what would you say are your (everyday) responsibilities and activities with regards to the company. Let’s say the investor invests with an active role in mind. If the question is vague, I can try and be more specific as well. Your input is appreciated.
Doesn’t it really all depend on the company?
Really? Well, assuming that the start-up is looking for funding and the angel shows up and is interested and is ready to invest, but says he wants an active role. At this stage, I am guessing that the company would take up the offer just because they are getting the funding, correct? So, I was just curious about the active role of this investor in the company. Would he be active in roles like administration, payroll, hiring etc? Or does active mean talking once a week or a month and discussing company strategies and decisions?
Keep in mind, someone who invests once in one company does not qualify as an angel. Angels are professional investors that typically have several active investments at once. More often than not, several individuals will invest as part of a loose association of angels with similar areas of focus, investment criteria, geographic proximity, etc. They will usually sit on the portfolio company’s board, and that by itself comes with a set of responsibilities: providing industry expertise, financial discipline, strategic guidance, and goalsetting, as well as leveraging their connections to help the company with bizdev and raising additional rounds of capital. That said, every startup is different; every angel is different; and every startup-angel relationship is different. An experienced angel should credibly establish the sort of role they expect to have from the beginning. They should also remember that it’s not their company–they may be an investor and board member, and thus have a right to have their voice heard and wield some influence, but they are not a sole proprietor or CEO.
dlukas Wrote: ------------------------------------------------------- > Keep in mind, someone who invests once in one > company does not qualify as an angel. Angels are > professional investors that typically have several > active investments at once. More often than not, > several individuals will invest as part of a loose > association of angels with similar areas of focus, > investment criteria, geographic proximity, etc. > They will usually sit on the portfolio company’s > board, and that by itself comes with a set of > responsibilities: providing industry expertise, > financial discipline, strategic guidance, and > goalsetting, as well as leveraging their > connections to help the company with bizdev and > raising additional rounds of capital. > > That said, every startup is different; every angel > is different; and every startup-angel relationship > is different. An experienced angel should > credibly establish the sort of role they expect to > have from the beginning. They should also > remember that it’s not their company–they may be > an investor and board member, and thus have a > right to have their voice heard and wield some > influence, but they are not a sole proprietor or > CEO. This is a good synopsis I think. Depending on the size of the firm in question and how strong a bargaining position the angel investor has, the angel investor could take an equity stake in the firm as a pre-condition to investing. Even if that is not the case, it would be common for them to join the board as a non-exec. The firm would be expected to benefit from the angel’s connections of course, so there are benefits to both sides from that arrangement.
Thanks for this info. Great summary like Carson said. So, let me now relate the topic to what is going on with my start-up. My start-up is a year old. We were looking for investors and we got in touch with an HNI who was interested in what we do and decided to invest. We accepted the investment, of course, after all the due diligence process. We definitely have good relations with him and he’s also on the BOD as part of the agreement before investing. So, we have the usual board meetings every quarter and discussions every now and then. He’s helped us financially by investing in the second round as well. But he’s not exactly “connected” in that sense that he isn’t from the industry that we operate in. But now he owns a significant stake and the fact that we are expanding as well (from 6 employees last year to about 15 now and planning to add another 40-50 more by the year end), he’s getting more and more curious about the finances about the company (naturally, so no complaints there). So, he’s basically now trying to take up a more active role by saying he wants to be the pseudo-accountant/finance guy. Budget planning, forecasting, cash flow planning etc would be overseen by him. Is this advisable? We don’t have a finance guy as such (except me), but I am more involved in business development, sales, marketing etc. And by bringing him in, it would save me a lot more time as well to concentrate on other things. Would there be any consequences to this in the future? I.e. director who’s also an investor who’s also a full-time employee? Or, should we just tell him it won’t be feasible currently. But if we plan to bring a full-time finance/accounting guy in, then I am pretty sure the investor won’t take it lightly. But the fact remains that the company is expanding and we will be needing someone soon to handle that finances full-time . What do you guys think?
My advice is don’t take our advice - this seems like too unique of a situation for you to be considering forum input. If you need help determining if you should pursue a CFA or an MBA though, you’ve come to the right place.
sparty419 Wrote: ------------------------------------------------------- > Thanks for this info. Great summary like Carson > said. So, let me now relate the topic to what is > going on with my start-up. > > My start-up is a year old. We were looking for > investors and we got in touch with an HNI who was > interested in what we do and decided to invest. We > accepted the investment, of course, after all the > due diligence process. We definitely have good > relations with him and he’s also on the BOD as > part of the agreement before investing. So, we > have the usual board meetings every quarter and > discussions every now and then. He’s helped us > financially by investing in the second round as > well. > > But he’s not exactly “connected” in that sense > that he isn’t from the industry that we operate > in. But now he owns a significant stake and the > fact that we are expanding as well (from 6 > employees last year to about 15 now and planning > to add another 40-50 more by the year end), he’s > getting more and more curious about the finances > about the company (naturally, so no complaints > there). So, he’s basically now trying to take up a > more active role by saying he wants to be the > pseudo-accountant/finance guy. Budget planning, > forecasting, cash flow planning etc would be > overseen by him. > > Is this advisable? We don’t have a finance guy as > such (except me), but I am more involved in > business development, sales, marketing etc. And by > bringing him in, it would save me a lot more time > as well to concentrate on other things. Would > there be any consequences to this in the future? > I.e. director who’s also an investor who’s also a > full-time employee? Or, should we just tell him it > won’t be feasible currently. But if we plan to > bring a full-time finance/accounting guy in, then > I am pretty sure the investor won’t take it > lightly. But the fact remains that the company is > expanding and we will be needing someone soon to > handle that finances full-time . > > What do you guys think? To start with congratulations on the success of your start up. You have come through two rounds of funding and are rapidly growing staff numbers. This indicates that you have been performing well so far. As for the angel investor: it does seem to be a little unusual what he is suggesting. It sounds to me like you will soon require a full time finance person. Why would a HNW individual want to take on a job like that? Is this guy retired and looking to take an active interest somewhere? I assume you are paying him a non-exec fee. Would he be looking for more compensation for this arrangement?
I think it is rare that a young company wants investors to come in an try to be “active”. After all, the companies founders are likely not willing to just let someone come in just b/c they are getting funding. If it were me I would try and exhaust other options.
@carson - the HNI is from a finance background, plus retired, so, I am guessing he is “bored” and wants to contribute. Which personally, I wouldn’t find unusual. We haven’t spoken about compensation or anything like that so can’t really comment on that part just yet. But if he’s going in come in full-time, we would definitely give him compensation. @CFA Jay - I don’t doubt the quality of his contribution, but I don’t want him to take it in a negative way if we end up going with other options. I was thinking, maybe we get him in and get another finance guy(s) who might work under him. Not sure. @Poulin - AF is pretty much the most intellectual forum I am on (and we got qqqbee as well now). But are there any start-up forums or something like that? I couldn’t really find any besides wall street oasis.
as your employee count will only be 15 when he joins, i don’t see why you wouldn’t hire him. he’ll probably work for less than market and do a better job. should you hire the wrong person, which is probable when hiring for a 15 person company, its toll will be great and could derail plenty of growth dollars and time. i would say, take him on and hire a full-timer when you reach 50+ employees or so. you will attract more qualified candidates once your company is a little bigger, so i think having a guy willing to ‘help out’ is a godsend for a small company… also, having an invested member of the board as your finance guy will make for a smooth transition when you look for outside help.
Well, to be honest, I don’t have a problem bringing him in. It’s just I am not sure how it might affect our future. Couple things I was thinking about: 1) You have a director, who’s also got a big stake in the company, and who’s also a full-time employee. If we are planning to raise capital in the future, I am not sure whether this scenario will affect the valuation at all. Would there be some sort of a valuation discount due to the fact that he has a big hold on the company? If future investors come in and they see they don’t really have a lot of control on the finances because of him, would they still be willing to invest? Maybe I am thinking too much into this, but just something I was wondering. 2) We don’t talk or meet on a day to day basis. So, if he starts involving himself frequently, I am not sure how it would change the structure of the company. If he’s not doing a good job or we are not comfortable with his style, it could put us all in a very awkward or uncomfortable position. He’s not exactly someone you could say that he’s not doing a good job or something. Confusing !! Thank God it’s almost weekend. Lot’s of time to ponder about it.