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The relationship between an entrepreneur and their angel investors

The relationship between an entrepreneur and their angel investors can be compared to marriage as open communication is very important here for overall success. Entrepreneurs should propose a profound business plan to their potential investors, including, amongst other things, marketing and financial aspects. Angels are also very attentive to entrepreneur’s business experience and management skills. These aspects are very influential in their decision to invest. As soon as angels feel interested and confident regarding particular business project, some entrepreneurs may likely obtain angel capital to finance their startups.

Entrepreneurs should always choose their angel investors wisely and target only those who have experience in their industry while angel investors should actively practice due diligence to properly assess and validate the entrepreneur and their business plans. Also entrepreneurs should be flexible in planning their business deal in order to meet their investor’s needs as well as an exit strategy should be worked out, documenting the investor’s plan to sell or merge their investments after their time frame within the company expires.

The relationship between the investor and entrepreneur are just starting after the requested capital is granted. This financial transaction is only the beginning of a dynamic investor-entrepreneur relationship that should be built on honesty, trust, and open communication.

The ability of an angel investor and entrepreneur to communicate with each other often reflects on the decision of concluding their business deal. Angels often do not want control of the whole company because they usually seek an active day-to-day role in their investments and provide advices based on their knowledge and experience on how to improve the net worth of the company to ensure its chances for success.

Effective interaction between the entrepreneurs and angels are very important in achieving a successful partnership and should be established by both parties before and after the financial negotiations are made.

Usually the investor and entrepreneur must build trust and work hard to keep it within the first 90 days following an investment and the first board meeting should set a high standard, where the goals should be realistic, include financial updates, send board materials in advance, and establish committees for audit, compensation, and governance.

Entrepreneurs should provide weekly calls with honest updates on the company’s performance so that investors could remain aware on their company’s status and growth. Effective communication will allow angels to keep heads up on any financial and operational issues regarding their investments. Entrepreneurs can also request appropriate support from their investors, who can properly guide them and provide fresh, strategic ways of improving their business. Advices and experience of an angel serves as an useful tool for the successful development of a new company. Angels can offer assistance in other areas where appropriate and may even be able to provide additional funding if needed.

Entrepreneurs and investors should discuss and mutually agree upon the desired level of investor's participation in company's activities. It is important for both parties to have working process well arranged with each other. They need to equally understand each of their functions and responsibilities in the investment and be compatible with each others’ principles. An angel investment is not simply a sale where all parties walk away after closing a deal, on the contrary, this is only the start to what will hopefully be a beautiful, professional partnership.

12 April 2011
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