If you have a startup company, you know for well that getting funding can mean life or death for your business. Startups are driven by ideas and passion. Unfortunately, passion and ideas won’t pay the bills. They won’t put food on your table while working on the code to get your magnum opus up and running. You need money for that and you need cold hard cash. The problem is not so much about finding investors to fund the initial stages of your company. The big problem is you get hooked up with the wrong kind of investors.
If your company is still in the initial stages of development, you probably have to go through the angel round. The angel investment round basically involves people that are not going to miss that money if they invest it in a complete dud. Usually, this round involves a fairly low amount of money which is less than half a million dollars or less than a million dollars from several people. The downside to the angel round is that you might attract the attention of the wrong kind of angel and if you get desperate and you take that angel investor on, you might be actually creating more problems than solving them.
While the money is great and may help take your business to the next level, you might have taken on an angel investor that can cause a lot of problems down the road. Common issues with problem angels involve asking for too much of the company, causing drama with other potential investors and worst of all, trying to run your company when they are completely clueless about your idea. These are serious issues so you have to be able to spot problem angel investors early on and refuse their offer of buying a part of your company.
How do you spot them? First of all, if they ask too many questions regarding running the company. It’s okay for prospective investors to ask a lot of questions because that’s part of due diligence; however, there are certain kind of questions that do raise red flags as to whether this person is seriously thinking of taking over your company or running it for you. Another problem investor is that they are too focused on money. All their questions and statements are all about return on investment or when do they get their money back. You have to freely feel out these people and if any of these red flags show up, do yourself a favor, take the hit and refuse the offer.