Tweet

Starting Your Company With Angels...Can I Trust Them?

Guest post by: Josh Bellendir

Article Overview: There is one common question I get asked quite a lot from friends and people I meet that are thinking of starting a business here in Japan or aboard. And that question is - Can I trust an angel investor? For those of you that don't know what an angel investor is, they are basically a wealthy individual that wishes to invest directly with a company or individual with a business idea that he/she feels would be successful.

Starting Your Company With Angels...Can I Trust Them?

There is one common question I get asked quite a lot from friends and people I meet that are thinking of starting a business here in Japan or aboard. And that question is - Can I trust an angel investor? For those of you that don't know what an angel investor is, they are basically a wealthy individual that wishes to invest directly with a company or individual with a business idea that he/she feels would be successful. From freedictionary.com, it states this:

"A wealthy investor who provides capital for new business ventures."

Angels are usually people that have lots of money and wish to partake in a business and have some ownership in that business. They also like to have the ability to control and influence the business to help it grow and become successful; after all they did invest a good portion of their personal savings into your idea. These people are usually doctors, lawyers, consultants, entrepreneurs, and other successful business individuals. Angel investors are the people that wish to be more involved in assisting the company's growth and partake in the business processes and activities as opposed to investors that give their money to venture capital firms. People that invest their money in venture capital firms simply want to invest their money and let other people manage how that money is used with the goal of generating a return on investment.

The question I often get is, "can I trust an angel investor?" They ask this question for a number of reasons, a few being:

1.) I don't really know this person

2.) He wont sign an NDA

3.) This is an individual as opposed to a company, I don't feel comfortable

4.) He will steal my idea

As you will notice, trust is the major issue here. Of course if you personally know an angel investor, you should always go with that person as opposed to someone you don't know. But you do need to look at this situation from the perspective of the investor. He is investing a lot of his money in you and your idea as well, and that takes a good amount of trust, faith, or whatever you want to call it. It's best to just look at the facts, as that is what he will be doing when he is trying to decide whether or not to invest in your company and idea. So look at what he will be offering you in terms of capital, how much control he is looking to have and what his track record looks like at funding other similar ideas. Other than the money he is looking to invest in your company, is he a good match for you and your idea? Ask yourself this one question and you should be able to know whether or not it's a good idea to go with this person.

Another issue you might have with angel investors is that you will have to disclose your business model/idea with him or her before he or she even decides to fund your idea. This is why it's important to first do a little background research on this person, see what he has successfully funded and what type of ideas he has funded. This will help put your mind at ease.

Naturally, people are concerned if they reveal the next best business idea to a stranger, he or she will just steal their idea and implement it themselves. This of course, is always the risk, but there are ways to protect yourself. For example, one way would be to not explain the entire business model/idea upfront. Reveal the basic concept, but don't go into too much detail about what sets you apart from your competition; your "secret weapon". Although, you may have to reveal this to really entice the investor to get him/her to invest in your idea. A smart investor, will only agree to fund your idea when he/she knows you have some competitive advantage over the competition. But in the end, the relationship between you and an angel investor needs to be one of trust. Always try to go with someone that you know or that comes highly recommended from a person you already trust.

Angels WILL NOT sign NDA agreements; the main reason being because they simply can't. Angel investors see business ideas every week and they might come across an idea similar to yours and may end up funding that idea. You may think he/she stole your idea as it is so similar in nature, however the business he funded and the individual or partners he funded had nothing to do with your idea and there were no secrets shared. And the more specialized and successful the investor is, the more likely he will run into similar ideas. As you can see, there can be all kinds of problems with this, and therefore, angels rarely sign NDAs. However, if you can get your potential investor to sign an NDA, by all means, provide them the paper and pen.

So, should you trust them? Well, as I stated above, you should try to find a person that can be referred to you or you feel you can trust after meeting and spending time together. I wouldn't necessarily look for an angel investor in the classifieds, although you can, but look for someone that you meet casually that expresses interests in funding businesses. Then talk about your business idea, give him your elevator pitch, and see what his reaction is. And always do due diligence. Research this investor more than you would for a candidate interviewing for a role in your company that would be dealing with your most confidential information. After you have seen his resume and list of successes and failures, you can then know whether or not he/she is the angel investor for you.

But in the end, after all the research, educated decisions and calculations, it really comes down to trust. Obviously if you came up with the idea, you would be the best to implement and build that idea into a company and better yet a successful company. So I feel it's rare that an angel would just take your idea and try to create it on his/her own. I hope this helps those of you out there that might be pondering this same question and have been holding back your brilliant idea that you wish to share with the world.

Related Articles
  A Tryst with Trust
  My PersonalTrust Initiative
  Building Trust
  The Truth About Why Clients Choose Your Business
  Starting a Home Based Business-Some Important Things Freelancers Must Know
  What You Need To Know Before Starting A Home Based Business
  Where to Focus Your Newsletter
  The Power of Trust
  Forum Marketing Secrets
  “Are You Building or Demolishing Trust In Your Business?”
  In the Workplace, Trust is Fragile
  3 Facts to Learn About Affiliate Marketing
  Trust and Respect
  Entrepreneurship Advice
  Building Trust for Explosive Business Success
  5 pillars of instant Trust
  Sales Coaching – How to Find Clients
  Trust Comes First
  What Is Your Communications Strategy?
  9 Questions To Ask To Determine If You Are Demolishing Trust In Your Business

Article Tags: Angel, Business, Investor



Related Forum Posts
How to valuate a business - Hi Garth - here is how we did it at Northern Crown Capital when I was helping them raise venture capital for Toronto-based entrepreneurs. Assume the start date is 2003 so 2008 projections are 5 years out: How Northern Crown Capital Valuates a Business 2008 Financial Projections Earnings Before Tax $5,865,000 Tax Rate 42% Taxes $2,463,300 Net Earnings $3,401,700 Amount Seeking to Raise Today $3,500,000 Discounted Value of Future Opportunity, 5 Years Out 2008 P/E Ratio 15 Value of Company in 2008 $51,025,500 Discount Rate Applied 30% Year 2008 $51,025,500 Year 2007 $35,717,850 Year 2006 $25,002,495 Year 2005 $17,501,747 Year 2004 $12,251,223 Value of Company at Investment in 2003 $12,251,223 Less: Investment Amount $3,500,000 Present Value $8,751,223 Discount for Risk & Private Company 40% Less: Discount for Risk & Private Company $3,500,489 Private Company Value $5,250,734 Present Value (What the Owner Keeps) $5,250,734 60.00% Financing (What the Investor Gets) $3,500,000 40.00% Total $8,750,734 100.00% I hope this helps!
Re: Essential Leadership skills - Vigilance Trust An ability to DELEGATE
Re: Moderators on vacation - Hi Everyone, I will be away for the next 4 days. Starting now.
Hi everyone - Hi everyone.I am Alex,SEO Analyst on XSEO Company.Nice forum.
Re: Bad credit guaranteed home loan? - Lending money to people with bad credit was one of the biggest things that put our economy under and many lenders out of business. I'd say if you have this opportunity take it now before it goes away. Trust me, if there are any of these programs left (and don't expect a low interest rate if your credit is bad) they won't be around for ever. At ANY interest rate.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

The OLD Way of Advertising, May Not be so OLD

Starting a Business with Bad Personal Credit

What I Really Want Is...

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.