An article by Financial Times journalist Jonathan Moules recently caught my attention. “A Spotter’s Guide to Bad Angels” spotted and tagged several species of high-net-worth private venture investors (often known as “angels”) that startups would be well-advised to avoid.
From the ridiculous (dumb angels, megalomaniac angels) to the serpentine (shark angels, litigious angels), the article was a poignant reminder to early-stage entrepreneurs and investors that not all angels come from heaven. Just as founders need to pick their investors carefully, venture investors should exercise diligence and caution in concerting with co-investors and syndicate partners.
This advice is easy to overlook, particularly when a cash-needy startup is caught in the heat of a money hunt. The entrepreneurs or syndicate managers may begin with a profile of the ideal target investor, but often cede their criteria as the rigors of fundraising incite “founder’s (or finder’s) fatigue”—when all money begins to look like the same shade of green. Inevitably, there is a tendency among entrepreneurs to chase and accept money wherever they find it.
Indeed, when the perceived time value of money becomes more important than the color of money, it can be difficult to discriminate desirable investors from bad angels. Advisors aggregating angels in a syndicate group need to carefully assess their motives to screen out potentially disruptive personalities as an investment syndicate is often an arranged marriage expected to survive for three to 10 years.