Are You a Drive-by Investor?

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Last Updated: October 16, 2010

First Posted: February 25, 2009 by Mary Jane Grenzow

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Ceding control to an entrepreneur only when pigs fly or when hell freezes over? In that case, drive-by deals aren’t for you.

In a drive-by deal, venture investors fund at the mezzanine / late stage of a company. They’re interested in a quick exit and take little to no role in managing and monitoring the startup.

So if you’re a drive-by investor, you’d fund the entrepreneur and that’s it. No add-on services. No consulting. No mentoring. No contribution at board meetings. You’re simply an investor who briefly makes an appearance before leaving, or one who merely drives by.

Sure, a lot of work has been put into the front end in due diligence and the like, to ensure that the entrepreneur could succeed without you. But after that, you basically say, “Here, take my money, startup. Go be successful. Give me my return, quick.” Then you’d call it a day.

The upside of a drive-by deal is perhaps you’d open yourself up to working with a wider pool of talents. Besides, many able, elite entrepreneurs mightn’t be willing to put up with your “add-on services,” which they might view as simply a grab for power. What happens when two massive egos butt heads? At the very least, a deal won’t get done.

But with a drive-by deal, heads do not get butted (at least not as hard). Egos don’t have to find a way to work together. The entrepreneur does what he does best — turns his brilliant idea into a money-making venture. And you — you just sit back and let him work his magic.

The downside? You don’t get to leverage your expertise and rolodex to maximize the company’s success. Worse yet, you’re so focused on quick returns that you’re prone to push the company towards an IPO even if it ain’t ready.

Are you more of a hands-on angel or a drive-by investor?

* For series, references are published in the last installment of the series.

Angel Investing, Definitions

tongyun

I'm more of a “let's roll up our sleeves and get our hands dirty” type of investor. I want to be able to work with the person who is getting my money to ensure that it is being used properly. That's not to say that a “drive by investor” isn't getting the biggest bang for their buck. But if I'm investing money, I want to know what is happening and if I can help.
http://www.paulubiadas.com Postman

I think that I’m one of those hands-on because I don’t really like to others to work for me.
I am much at ease with the fact that my idea doesn’t work then to just sit back doing nothing and let my money grow.

I know that even if my ideas aren’t working, someday I would be good at doing those things and thus I would benefit from it in the long run.
http://venturehype.com/angel-investing-glossary/ Venture Hype | Angel Investing Terms

[...] Are You a Drive-by Investor? [...]
http://venturehype.com/ Venture Hype

You guys have a great mindset. The challenge is to decide where to draw a line between too much help and not enough help. As Carl said in Angel Investor’s Challenge #5: Now What?, “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.” So, to avoid hard feelings, it's essential to communicate your expectations with the entrepreneur early in the game.
Sanjay Uplana

I am agree with tongyun.As an investor,its not only our right but also the responsibility to keep a pin-point eye over our entrepreneur to make sure that our money is being used properly.No one is a daniel and it's also possible for an enterprenu to make few foot-stomping mistakes.Its important to discuss with him on all doubtful issues.
Cogbuddy

Keeping an eye on the entrepreneur with whom we have made the investment is quite necessary. No way i will be a drive by investor. This is the case only when i invest in big companies. I will try to have a good rapport with the senior executives and engage in meetings often. I will willingly extend my hand for the full support by any means. I will try to ensure that my money is not a loss by investing in that.
Descorpio

More or less i perform like a drive by investor. Because i like to gain experience and knowledge but not in a mood to spend too much of time on advicing them on how to do the business. The entrepreneur must have known the tactics on the do's and dont's. He may have his own ideas of propagating the business. Unless he fails to deliver, i will be with him.
cirereyes

I’m definitely not a drive-by investor; I would closely monitor my investment and guide the people involved if I see something wrong. I just can’t take the risk of losing my hard earned money and let it just earn by itself. If money is not a problem I might go for it and be like a capitalist partner.
http://venturehype.com/ The Hyper Team @ Venture Hype

It's important to draw a line between too much help and not enough help. If you put too much unnecessary pressure on the entrepreneur, the deal and the relationship will eventually turn sour.
http://venturehype.com/ The Hyper Team @ Venture Hype

Sanjay, Cogbuddy, cirereyes – It's important to draw a line between too much help and not enough help. If angels put too much unnecessary pressure on the entrepreneur, the deal and the relationship will eventually turn sour.
Sanjay Uplana

I am agree with you. Too much pressure is really harmful for the relation. But its equally important to keep a track record of your financial plan and ongoing concern and also to make yourself familiar with some basic terminology of your business investment to avoid any unwanted events.
Ricardo

That's an interesting concept and I think I'd have to have absolute confidence in my partners before getting into an investment situation like that. I think it would be interesting to hear about the more well known success stories where people have profited well from drive-by investing. I think that's a very fitting term for it.
http://venturehype.com The Hyper Team @ Venture Hype

For basic terminologies, you may visit Angel Investing Terms to learn more. This list is updated regularly.
http://venturehype.com The Hyper Team @ Venture Hype

Yes, drive-by investors usually only invest in start-up founders whom they have “absolute confidence” in. And these founders usually have a track record of successes under their belt.
http://venturehype.com The Hyper Team @ Venture Hype

For basic terminologies, you may visit Angel Investing Terms to learn more. This list is updated regularly.
http://venturehype.com The Hyper Team @ Venture Hype

Yes, drive-by investors usually only invest in start-up founders whom they have “absolute confidence” in. And these founders usually have a track record of successes under their belt.
http://venturehype.com/angel-investing-glossary/ Angel Investing Terms | Venture Hype

[...] Drive-by Deal: Slang for deals where you seek a quick exit and typically provide only funding and no add-on-services. [...]