Angel Investor’s Challenge #5: Now What?

Image: Hugh MacLeod

You and a group of other angel investors have placed your trust — and your money — in a startup venture. Now what? What can you and your fellow investors do to help your portfolio company live up to its potential?

The previous articles (Challenges #1, #2, #3, #4) in this series focused on choosing an investment and making sure that you’re getting your money’s worth. But successful angel investors don’t stop when money changes hands. The next step in the process is monitoring the performance of your investment. This is actually something you should consider early in the game. How much involvement do you want to have in the company, and what will that involvement look like?

As an investor of a startup, you need to think about who’ll speak for you. If one seat on the board is reserved for an angel, you need to think about who’ll be able to accomplish the most in that position. And that may not be the person who made the largest investment. The angel who serves on the board should be someone who knows the business thoroughly and is skilled at interacting with others.

Oftentimes, angels also act as mentors and coaches to management. Many startups are headed by young, inexperienced managers who have wonderful ideas but little knowledge of how to make them work. You can provide the sort of expertise and business savvy these novices need. You can also put managers in touch with your network of valuable contacts in the business world.

Even before the investment is made, you need to think about how you’ll communicate with management. You don’t want managers to feel like you’re breathing down their necks, but you do want to establish regular channels of communication. At a minimum, you should request quarterly reports on the company’s progress.

You also need to think about how you want to measure the company’s performance. Are you mainly interested in tracking revenue, profits or technical progress?

And what happens if problems emerge? If, for example, the company badly misses milestones? In these cases, you should initiate closer contact with the company and more frequent communications. You may also offer additional coaching and advice to get the company back on track – but don’t breathe down management’s necks.