The People Part of Investing

Investing is about people. If you’re seeking angel investment for your startup or small business, then you are part of that people. Investors are people too. You always need to know your numbers in order to get an investment. But know the people things too.

Early-stage investors are referred to as angel investors because they’re investing in companies at a very early, very risky stage. But an angel investment is not a charitable contribution. Even if you’re curing cancer, and your target investor was impacted by a loved one succumbing to cancer, doesn’t mean the investor is giving away money. In fact, if investors wanted to make charitable contributions to cancer, they would donate to the American Cancer Society, a cancer hospital, or a hundred other organizations addressing something similar. If they’re investing in you, have a plan for how you’re going to pay them back. Don’t expect free money. Nondilutive funding—the kind that you don’t have to pay back or lose equity—is out there. But it’s not an angel investment.

Investors may ask you if you’ve raised what is usually the first round of funding: friends and family. (Also known as friends, family, and fools.) I ask this same question to entrepreneurs who want to talk to me about investment. Many times, the response is that they didn’t want to ask their friends and family for a variety of reasons. But if you’re not brave enough to put your business idea out into the world for the people who love you most, then investors will see you as not brave enough to successfully get your business to where it needs to be.

Venture capitalists manage other people’s money, and they are required to make investments. When you pitch to them, you’re competing with all the other startups pitching to VC. When you’re pitching to angel investors, the competition is different. Investors might be thinking about buying a new car, taking a Viking River cruise, splurging for a party or trip with elderly parents, remodeling the house, or a million other things. They are people with families and responsibilities and limited time on Earth. Why does investing in you right now make more sense than those other things?

Angel investors are not going to sign an NDA to hear your pitch. You, the entrepreneur, might view an NDA as protection. But what the investor hears is that your idea is so easy to replicate, and you’re so insecure and untrusting about it, that you’re willing to dump liability, bureaucracy, and just plain old hassle onto an investor. And for someone who could instead buy a new car, take a Viking River cruise, splurge on a party, remodel the house, or a million other things? Nope, never going to sign that NDA. Now, once you’ve hooked them on the potential, they want details on your intellectual property, business model, customers, etc.? Maybe then. But not a moment before.

When you’re pitching to investors, it’s best to be outrageously honest about what’s happening in your business. Attempting to hide the downsides, the risks, the competition, the personal challenges, or anything else is a mistake. If you are radically transparent about where you are, where you want to go, and all the barriers between now and that golden opportunity, investors will trust you. This goes for after the investment too: radical transparency will empower them to be able to help you through those million challenges.

Most importantly, when you pitch to an angel investor, you’re building a relationship. Should they invest in you, it’s a legal contract, more like a marriage. Angel investors won’t write you a check and wish you the best. They want to know what’s happening with that investment, what they can do to help you overcome challenges, and who they can introduce you to in their network to advance your business. They’re not just people with money to spend: they have networks, advice, and experience that can get you to the next level.

If you get an investment—or even if you don’t—stay in touch with investors. If investors said no but can see your progress anyway, they might just invest in you at a later stage in your company’s growth. And if they did invest in you, they will want to help you stay on the path to success, celebrate wins, and overcome challenges. Even at your lowest moments, don’t be afraid to share those lows with investors. When you are able to shine light on the challenges, your investors might just be able to get you through them.

Ultimately, the goal for entrepreneurs working with angel investors is to be successful with your business. And the goal for investors? For you to be successful in your business. By focusing on those mutual goals, the relationship between an entrepreneur and an investor can be incredibly rewarding.