You and your investor have made it through some tough decisions. You’ve shown the investor your valuable idea and she has decided to invest. You’ve set parameters and negotiated terms. Perhaps you have negotiated an active role for your angel investor in your business endeavor. Many times an angel investor chooses to invest in companies that are within their interests. If you are an artist, you may have found an angel who specifically invests in arts-based businesses. Many artists have fruitful ideas but lack the business acumen to develop their ideas. Therefore, offering your angel a role in your business can help ensure success, and even teach you a thing or two along the way.
Supporting the entrepreneur is part of the reason many angels choose to invest their money. In Winning Angels: The 7 Fundamentals of Early Stage Investing, authors Amis and Stevenson discuss the five participation roles an angel investor may take on in your business. These roles can evolve and change as the challenges of the business ebb and flow.
Silent Investor: Some angels choose to let the entrepreneur hold the reigns, taking “no active interest in the company, except to sign papers and hope for returns” (249). However, if an issue comes up in an area of expertise, the angel can change roles to accommodate and support their investment.
Reserve Force: A reserve force angel will use their relevant skills to support the entrepreneur when asked. Amis and Stevenson explain how one angel investor maintains a “hotline” that the entrepreneur can use to contact the angel during a difficulty. This kind of angel supports their investment by offering advice, counsel, and even training to the entrepreneur and his team.
Coach: Amis and Stevenson state that the supporting role of coach is “perhaps the highest impact investor who does not control the company” (250). This kind of support involves regular meetings, and offering advice, support and any assistance the entrepreneur will need to ensure success in the endeavor. Much as in sports, the coach does not play the game, he stays on the sidelines (250).
Controlling Investors: This role goes beyond support and becomes an active lead in the business, often usurping the power of the entrepreneur. This is a high-impact role that can often create tension in the relationship between the angel and entrepreneur if the terms are not hashed out ahead of time while structuring the deal.
Lead Investors: As with many things in life, the money takes control. If an angel has the bulk of the involved risk through capital, then he may be interested in holding the company reigns to ensure a return on their investment. Again, creating terms for this scenario in the deal structure can mitigate dissonance between the entrepreneur and angel investor. If the lead investor is doing his job well, then he is likely empowering the entrepreneurial team, taking the lead on future investments (specifically venture capital), and effectively creating value from the team’s effort by leveraging his knowledge and experience.
As you can see, support may come in a variety of forms. Many times an entrepreneur is not the best choice for ceo. He or she may need to learn new skills or relinquish control to earn a strong profit. For artists, this may be easier said than done, since the nature of an arts-based business relies on the creativity of an individual. Therefore, all the ego and experience, or lack thereof may impact the ability of the entrepreneur to accept support, especially a control or lead support. Accepting angel investments sets you up for dealing with these kinds of control issues, as well as the growing pains of creating a business. It is important to consider what kind of help you need when making a deal with an angel investor, and whether you would be comfortable stepping down as head of your business.
9 thoughts on “Angel Investors & Artists: Support”
I really enjoyed this chapter. I had not considered the various aspects of supporting in this way before. It is interesting that their are so many ways that can benefit businesses both large and small. I think the supporting roll/s that and entrepreneur seeks when working with an Angel investor really need to be a good fit. Through a team effort, good communication and delegating the roles properly, I can see how this can really help entrepreneurs and investors get the most of the partnership.
I think the best situation is when an investor links with a start up and brings their special skills to the table. Having someone with manufacturing experience or online selling experience for example seems like a no brainer if you are looking to move into those fields but have little experience. the biggest thing I took from this chapter is how valuable these partnerships can be. Sometimes it should be about more than the money, especially if you are not a business wiz. I think the thing I realized is even the smartest engineer may not understand the most basic elements of business. Making strategic partnerships with investors might be the way to solve that. I think you are right artist may fall into this category as well. Many simply don’t want to waste their creative time on the mundane tasks of running a business.
Great post Joy! Your post makes me think of Shark Tank. The sharks (investors) are always thinking of support during the negotiating phase, and sometimes will pass on a deal because they aren’t able to support the business due to lack of knowledge. They understand how integral support is to the success of a business. If you watch it enough, you can almost guess who will offer a deal, because it becomes clear where the sharks’ strengths are. There are times when sharks will offer a deal, but in partnership with another shark. Sometimes it is to lower their risk, but on some occasions it is to add support they believe the business will need to be successful. Thanks for sharing the different styles of potential support and how it can impact a business and the entrepreneur’s role in it.
Support is something we that we can all feed off of. You bring up some excellent points in the post. I like how you stated that some sharks look to be a supporting cast member to the companies that they invest in. Without support I believe that many of us wouldn’t have made it to where we are at today while there are definitely still people who make it without any support and do well. This can translate to investing and the support that we find in investing and throughout sample investments. I look forward to being about to develop a supporting cast to move forward with investments later on in my life!
Great job with your post. Great information to come by when trying to get some type of support for your new business venture.
I like that you have tied in the arts (your interest) with the role of CEO, and that for many of us this is a decision we need to make so that our startups are positioned for success. Investors can take on this role, or that of advisor, and to have an experienced investor on the team with entrepreneurial experience would certainly be a benefit! Jill
Hi Joy! Great blog post. I think it would be highly beneficial to have someone investing who has experience and education in my industry and with my market. I also believe I would want that investor to take on a coach role, for us that would be most beneficial. I would be interested to know what most people in this class would choose since we all have differing industries and interests, you know?
It’s funny that you talk about an entrepreneur not necessarily making the best CEO. We spoke to a consultant who says he works with many business owners that have great ideas but do not know much about actually running a business.
Awesome job! Everyone needs to know how to gain support when you are trying to build a business. Creating a power team would also help to create , good support for your company.
You did a great job explaining the different roles in which an angel investor may have. I really enjoyed this chapter, as it put my mind a little at ease in knowing that investors aren’t all about capital gain and can play a large role in helping to develop the kind of business person someone is or becomes. I would really like to work with a reserve force investor, as I am one who asks a lot of questions to gain more knowledge. Therefore, working with someone who is always willing to answer calls and offer advice would be the best route for myself; at least until I gain more knowledge and experience in running a business.