It is quite interesting to hear all the different stories of the many types of angel investors from the many startups that I advise. Some investors are nice but some are seriously devils in disguise, out to ruin potential startups of their promising future.
Forbes had written an article, “Seven Investors to Avoid” in 2009 which is a good insight of general angel investors. But allow me to write one which is more Singaporean-flavoured that startups here will relate to. So here are the Angels whom you should not consider them Angels.. avoid at all cost!
1. The Coffee Drinker
This guy is generally someone who has reasonable business experience and is willing to share with you advice over a cup of coffee. That’s great. But soon after your first drink, he is happy to continue talking to you if you give him just 5% of the company. He eschews that his great advice will take you to the next stage and he is willing to invest in you. Ironically, after you update the ACRA Business Profile, he seemed not interested in putting money in but encourages you to go seek others to pull money in. By then, this angel has nibbled off a bit of your equity. He may be a good adviser but he won’t be dropping you money anytime soon, unless you have some big exit on the way.
2. The Property Owner
Singaporeans are typically property mad. A lot of mature folks in the last 10 years have received hordes of capital gains from the sale of their properties. And with the dull property market, many may have spare cash lying around and seek alternate forms of investments. Can they easily afford $100k? Sure! But their mindset is to have guaranteed returns. They will be hesitant to give you any cash and expect you to sign a form of guarantee like their rental income. It is cheaper than a bank loan of 11% but hell not a good thing to guarantee returns with these types.
3. The Kia-see (afraid to die in Hokkien)
Singaporeans and its neighbours are typically risk-adverse. To expect a loss of 100% of capital against a high return of 1000%, they rather put their money in stocks or bonds to preserve their capital. If you meet one such angel, they will be super negative of your company and find every single problem that your company will face, unless you have some business that already has a guaranteed client. Even then, to ask these people to part with money to invest in you will be a headache not worth having.
4. The VC in disguise
I had one startup who faced an angel investor who was inexperienced but obviously dabbled in the VC circle. For just $50k, the guy came up with a long term sheet, citing all forms of controls and expectations of 20% IRR and board control with 2 cheque signatories, etc. I agree a simple term sheet is in place, but this guy’s 9 pages was truly excessive for a company that didn’t even have a clear MVP in place.
5. The idea thief cum entrepreneur
There are some who are just bored and are happy to chat with you to get to know all your research and secrets in the name of hoping to invest in you. But here’s the catch, they find your idea so good, they are just out to learn from you and go ahead to replicate your idea with their own money.
6. The petty old miser/cheapskate
For $100k, he will expect you to show him all your receipts and expenses. No paying yourself big salaries (sure) and no entertainment, no excessive buying of equipment, office furniture. It is fine that you bootstrap but these misers can be very particular on your spending habits. I had one who asked the startup to give 3 quotes for a simple laptop purchase before he counter-signed the cheque.
7. The bravado man
This guy will proudly tell you on the amount of exits he made or how successful he is (which could have been buttered and faked). He then tells you for 50k he wants 40-50% of your company because he has all the necessary skill sets to bring you to success and he won’t be sharing it unless he gets a good stake. You will find him wasting your time and dominating your company and maybe you should be working for him after that.
8. The broker
He isn’t an angel investor, but talks as if he is very important and knows a lot of potential investors. But if you want him to do an introduction, you will need to pay him some cash to grease his hands to get you the investors. And off you go meeting these potential investors after paying him and find these investors aren’t even at all interested in investing.
So, what can you do to avoid such people? Learn to take time to access a person and decipher whether he is genuinely interested or just out to make a deal from you. Do your background checks if you can and find out about the person whether he has truly invested in others.
I don’t have much other ways except to trust your instincts. When you feel uncomfortable in any investment deal, just walk away from it. Sometimes, your gut instinct can save you a lot of pain dealing with shareholders who may waste too much of your time.
This article is the first of the ‘Startup Advisory Clinic’ Series.
This article first appeared on Tech in Asia.