Pelorus

                  Lessons Learned

“Chew Toy:  Don’t become an angel investor’s chew toy!”

“A chew toy is a toy designed to be chewed by animals for purposes of stimulation and relief from boredom.”  (United States Patent 5477815)

While most of these “lessons learned” are from the vantage point of the investor, this lesson is principally for start-up company entrepreneurs.  In the normal progression of financing a start-up, the company steps beyond the financial resources of “friends and family” to seeking angel investor capital.  Angel investors come in all shapes, sizes and forms of wealthy individuals.  While virtually any potential investor money looks attractive when you are on the money hunt, be careful!  A bad angel investor can suck you dry in oh so many unpleasant ways:  

Active, counter-productive board participation.  Sometimes in order to secure a significant individual angel investment board membership is offered.  In a perfect world, a board member provides capital, connections, and a wealth of business acumen.  In the real world be wary of the angel investor that treats your business as a “chew toy”--- something to entertain themselves or satisfy some sort of ego need to be in control without having the requisite skills or experience.  Such angel investors can be a huge distraction and potential poison for a start-up.  Becoming a “chew toy” can take many forms.  To identify a couple:  

Overly active interest in day-to-day activities and business decisions.  Where you might have hoped to see and hear from such investors on a monthly or quarterly Board meeting basis, you find yourself in the position of fielding unsolicited emails and calls too frequently.

Introduction of “pet” projects or low potential strategies that interest the “chew toy” investor sapping valuable resources of staff, time and money.

Solution:  Learn as much as you can about potential angel investors.  Look at potential angel investors with your eyes wide open.  Look beyond their money.  Do they have real business experience and a network that might help your company?  Do they have any track record of angel investing?  You will be taking their money with their expectation that you will make a profitable go of it.  These are people that you will need to get along with--- be able to deliver  results as well as explain the inevitable bumps along the path.  Good angel investors can be a real asset.  Bad angel investors can sink you!