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How to Deal With Pushy Angel Investors

Tech startups often rely on angel investors to get off the ground or expand their business. Typically, the angel holds a minority interest and usually takes a hands-off approach to many of the decisions the company founders make. Smart tech entrepreneurs surround themselves with investors who are industry professionals and possibly serial entrepreneurs, who can provide critical business advice and connections to later-stage investors. As Stuart Bracken, Co-Founder and CEO of Bioscape Digital told us, “They not only bring money to the table. They bring expertise, too.”

InvestorThat doesn’t mean angels don’t have opinions. They do, and many times they and the company’s leaders won’t see eye-to-eye. That can raise tensions. When it does, says Bracken, it’s important to remember that the angels “have the best interests of the business at heart.” If the angel has a deep understanding of the company’s space, it’s often easy to sell them on strategic decisions and head off major disagreements before they crop up. “It’s simply smart to get an angel investor in your vertical,” Bracken suggests.

Pick Your Partners Wisely

Often, family and friends become angel investors, but their money comes with certain risks. Tech startups are never guaranteed home runs, and those who are unaware of the risks and personally involved with the founders can be challenging to deal with. That’s why bootstrapping – using your own money — can be wise at the start. When the time comes for further funding, it’s often better to turn to professional investors, industry experts and serial tech entrepreneurs than it is to ask your family to invest.

Besides, industry experts and professional investors tend to offer larger amounts of early stage seed money, says Aleksandr Yampolskiy, CTO of conferencing and webcast provider Cinchcast and organizer of the New York City Technology Startup Meetup. They also understand the risks and rewards involved. “They’re investors who do it for a living and they perform all kinds of assessments before they give money.”

Look to Impartial Parties

In addition to your investors, it’s wise to have outside advisers and independent directors on the board. “You want people without financial capital invested in the company,” Bracken says. The reason: At times, it’s hard for owners and investors to think clearly. Neutral parties can help find common ground. If there’s a disagreement on how to accomplish a company’s goals, they can step in and help look at the issue strategically. “It’s a negotiation thing — just like negotiating with the customer,” Bracken explains. “You can’t just negotiate on terms. You have to sell philosophy and why you can accomplish your goals.”

Get a Backbone

Such discussions aren’t always easy. So, there are times when taking a stand is necessary, especially in a specialized tech startup. “You have to have a backbone as an entrepreneur,” says Yampolskiy. After all, “you are the one investing all of the time and you have a vision for the company.” While it’s important to be open to legitimate suggestions, it’s also smart to stay true to your vision and find investors who get your ideas upfront.

The Money Well

Of course, minority investors have no real leverage in the company, points out Michael Horten, Managing Partner of HortenCC, a law firm that represents entrepreneurial growth companies.Angel investors don’t have legal control in strategic direction,” he says. They can obviously voice their opinions, but they hold no real power, except for one thing — providing additional cash down the road. That’s why negotiation and the human touch are so important.

Communicate, Communicate, Communicate

An even better way to head off conflict is to keep your angels informed about your company’s progress. Horten recommends candor and regular updates. Says Horten: “If they keep investors informed, there’s no surprises, and it makes the angel investor more likely to pony up additional cash.”

About Myra Thomas

Myra Thomas is an award-winning business reporter. She started her career in finance, eventually becoming AVP for a Lloyd’s of London intermediary. She applies her extensive business knowledge to the world of reporting. Her stories run the gamut of topics, including tech, banking, healthcare, personal finance, and small business. She has a BA from Vassar College and an MFA from Fairleigh Dickinson University. Myra lives in Fanwood, New Jersey with her husband, two daughters, and two fierce Cairn Terriers.