Why Angel Investors are the Worst....or Maybe the Best?

If you’ve recently attended pitch events or been around groups of angel investors, you’ve probably heard at least one startup founder complain about how frustrating the process can be. As both an angel investor and a headhunter who recruits directly for startups, I completely understand the exasperation that can come with pitching to angels. But, as with most things in business, behind every frustration there is an important lesson to be learned if you know where to look. Here are some of the most common complaints I hear about angel investors, along with tips on how to adapt and thrive.

Angel investors ask the "wrong" questions

It can be rough when you find yourself pitching an idea that you’re passionate about, only to find that potential investors are interested in everything except your idea and vision. I often hear founders complain "they only asked about my co-founding team" or "they wouldn't stop harping on my projections," often finishing with some variation of "they just don't understand the big picture of what we're trying to do." Basically you go in ready to sell the dream, and all they want to talk about is reality. This can throw even the most stalwart founder off-guard, and put them on the defensive.

However, when examined from the right perspective, these questions can be incredibly valuable. It’s like being given a copy of a final exam before you have to take the test. More importantly, if you went in to sell the dream but only got questions about reality, that's not their fault, it's yours. So learn from it. If you can separate yourself from your product and accept candid critique, angel investors can show you weaknesses in both your product and your pitch that you didn’t realize were there. This not only prepares you to answer those questions better in future pitches, but can also result in a stronger team, product, and company overall.

They tell you your startup is not unique

I hear this most frequently from first time entrepreneurs, and it's completely understandable. They've talked to everyone in their network, spent hours searching online for competitors, even floated the broad strokes of the their idea at a few startup events and nobody has ever heard of anything like it. How could it not be unique? Then they land their first pitch with an angel investor and find out they're the 3rd similar company to pitch in the same month, and they are devastated.

The problem here is two-fold. First: it's a textbook example of the Law of Small Numbers, which is the mistake of assuming that you can make accurate judgements on a large data set from a small number of data points. Don't get me wrong, doing diligence on potential competition is incredibly important, it can tell you how far behind you are if there are other companies already in the market. But it can't tell you how many other stealth mode startups just like you are out there.

Second, this way of thinking puts too much weight on the idea and not the real reason startups succeed or fail: execution. As an angel investor I hear good ideas all the time, but an idea by itself is pretty much worthless. Don't just pitch me your idea, pitch me how you're doing to execute on it. Convince me you've got the skills, the knowledge, the team, and the grit. This is one of the biggest disconnects I see between early entrepreneurs and investors.

But there's a silver lining here too, and that is that the earlier you get this dose of reality, the sooner you find out.

If you can’t explain it to me in 2 sentences, leave my office

A lot of times, angel investors simply lack the time to become professional level analysts of the industries that they invest in. They look for general business acumen and traction. Therefore, if they hear a lot of industry specific jargon, they may pass on a pitch early. Angel investors also might harp on things that you as a business owner might not think is important, or that you think people should already know. But that forces you to be able to communicate your value proposition simply. Being able to explain your product quickly and easily to someone who has never heard of it before can help attract future investors, employees, and most importantly: new customers.

Hands on Angel investors

Angel investors can negotiate like they have a billion dollar fund, even if they’re only putting in $25k or $50k. This can feel heavy handed to founders who were previously working with no oversight. But by the same token, good angel investors view their funding as a significant part of the company. That means they are more likely to support you by lending their own expertise because they’re giving you engaged money or smart money. In a way, they’re paying to give you some of their wisdom.

Tight knit community

The good news is: early investors can make warm intros for you if they respect you and think your idea is solid. However, a common fear is that your first impression has a much wider, and more potentially catastrophic, effect in this tight knit community. The way to deal with this fear is to always respect people’s time. Make your pitch as concise, simple, and logical as you can. Vet the pitch through mentors and people who have had successful exits. And finally, ask yourself: if someone came to you with this exact pitch, in this level of detail, with this strategy and product, and you had no other context, would you feel comfortable writing a check?