Why do angels matter to founders? This is a simple question with a not-so-simple answer. In this blog, I’ll delve into the reasons why angels matter to founders, detailing what some of Groove’s own portfolio company founders had to say about this. Let’s dive in!
Funding
Angel investors are generally the first source of funding that an entrepreneur receives. At this stage, it’s too early for a bank to underwrite a check, and equally too early for institutional investors to finance. To entrepreneurs, angel investors are often the difference between bringing their ideas to reality or not. And this phenomenon is especially true for underserved demographics of founders who typically don’t share the same access to generational wealth, or don’t have access to a network that can help fund their startup.
Knowledge
Many angel investors have successfully navigated the turbulent waters of entrepreneurship themselves. Their firsthand experience equips them with insights that can prove invaluable for founders. Whether it's steering through challenging phases, scaling operations, or understanding customer behaviors, angel investors often serve as mentors, providing a wealth of knowledge that other sources can’t.
Jazz Hampton, founder and CEO of TurnSignl, echoed the value of this knowledge aspect, stating, “Often, angel investors were founders in their own right and they bring first-hand experience to an invaluable mentor relationship. Their investment is an extra incentive to ensure they are available and willing to be a sounding board and advocate in your corner. If I had a dollar for every time I reached out to an angel investor for advice, I might not ever have to raise funds again!”
"If I had a dollar for every time I reached out to an angel investor for advice, I might not ever have to raise funds again!"
Network
Angel investors often have extensive networks developed through years of industry experience. By tapping into these networks, founders gain access to a pool of potential clients, investors, partners, and mentors. The connections made through angel investors can open doors to collaborations, strategic alliances, and even additional rounds of funding. The saying “it’s not what you know, but who you know” holds true anywhere, but especially in the world of startups. Angel investors have the ability to significantly contribute to expanding founder networks.
Honesty
Great angel investors don't sugarcoat their feedback; they deliver it unfiltered and honest. Whether it's pointing out flaws in the business model, identifying gaps in the team, or highlighting areas for improvement, the best angel investors provide critical feedback. While it may be hard to hear initially, this honest feedback ultimately serves as a catalyst for growth, pushing founders to strive for excellence and continuously iterate their ideas.
Phil Terrill, founder and CEO of SoleSafe, reflected on his relationship with an angel who provides honest feedback. He states, “As a first-time founder, it can be very easy to get caught up in the ‘noise’ of building a sustainable business while balancing the pressure to be successful. I’ve had the blessing to have an angel investor really be frank with me. Seems simple, but honesty can be invaluable when going 100 MPH. She meets with me regularly and sometimes our conversations are just a reminder to ‘stay focused’ on the mission. These conversations and her expertise in technology have helped me unlock a strategy that we believe is our big bet for growth”.
Credibility
It’s important to acknowledge that the presence of reputable angel investors adds a layer of credibility to a startup. The stamp of approval from seasoned investors can attract additional funding from venture capitalists and other institutional investors. Furthermore, having angel investors onboard signals to the market that the startup is backed by individuals with a track record of success, potentially mitigating risk perceptions and instilling confidence in customers and partners.
Jazz Hampton tapped into this credibility element, stating, “Angel investors are like going to Harvard. For many founders, especially founders from underrepresented communities, angel investors are the first investment in them and their organizations. This is important, but not just financially. It is more critical because this is an external validation from the market that others believe in you and your business. Unfortunately, for some founders, it is often the push that larger investors need to see before taking you seriously. When you walk into any room and, say an experienced angel investor invested in your company, it means that the rest of the market affords you respect that you may not otherwise have. Going to Harvard doesn’t mean you will be successful, but it does mean people will take you and your business more seriously”.
"When you walk into any room and, say an experienced angel investor invested in your company, it means that the rest of the market affords you respect that you may not otherwise have. Going to Harvard doesn’t mean you will be successful, but it does mean people will take you and your business more seriously."
Patience
Angel investors have a long-term outlook. They understand that building a successful startup takes time, and their commitment extends beyond quick returns. This patient capital allows founders to focus on long-term strategies rather than succumbing to short-term pressures. Angels know that they’re committed to the startup and the founder for the long-run, and many are willing to put effort into upholding the business and that angel-founder relationship throughout that term. In fact, relationship-wise, many angel-founder relationships last longer than the average marriage in America (7 years)!
Belief
Angel investors are willing to take risks on unproven ideas and untested markets. Their risk-taking mentality and belief in early-stage companies is significant to founders, especially when it comes to support. For founders, having someone in their corner who is willing to take a risk on them and support their business goes a long way. It’s incredibly encouraging to have someone believe in you, and this belief element that angels bring to the table is reassuring and encouraging to founders.
“While it's obvious that the funding matters, beyond that it's the sense that multiple people believe in what you're doing that is so valuable to our team and keeps the mission moving. It is a bigger sense of accomplishment and motivation to have 8 angels onboard than one VC fund, and Groove is an exciting way to get that experience of both landing the VC and getting support of angels”, reflects Mike Pitt, founder and CEO of Q-rounds.
If there’s one thing I hope you took away from this blog, it’s that in the challenging world of startups, angels matter. Not only do angel investors bring funding that’s often life-changing for the founder, but they also bring knowledge, a network, honesty, credibility, patience, and belief that’s invaluable to both the founder and the startup’s success.