todd.jpgTodd Vernon, the CEO of Lijit, has written a great article on raising money from angels. I especially like his taxonomy of angels:

The Family Investor: The Family Investor is likely not really a classic Angel Investor at all but rather a supportive family member that “knows you”. Their motivation is likely out of support (sometimes guilt), but their basic investment thesis is they trust you. For me these are the worst type of investor because you likely have intimate knowledge of their financial situation and whether or not they ‘should’ be investing. Likely, they have no inherent feel if your idea is good or not, but may have changed your diaper at one time or another and have overcome that experience to hand you a check for $25K or $50K. Personally, I like this category of investor the least because the investment is totally emotional and personal – and that sucks in business. But based on the financial situation of the individuals involved and the relationships this can work ok if everyone comes into the situation with their eyes open, but go out of your way to make sure.

The Relationship Investor: The Relationship Investor is probably one or more co-workers from a previous gig or business friends you have known for a while. They may or may not understand what your new company is doing but they have had a track record working with you. They want to be supportive, but are looking for a return. You won’t lose them as friends if things go bad, but the investment for them is likely not ‘trivial’. In my experience these are good Angels to have, again as long as their eyes are open going in. These people can also be wildly supportive of you in terms of finding employees and other resources.

The Idea Investor: The Idea Investor is probably very familiar with the space your company is targeting. These are in some ways the very best types of Angels because to some degree they validate your idea. There investment is based on the Idea and there is little emotion around the table (always good). If you can get them onboard they can open doors into partner relationships and just generally good advice. You will spend most of your time convincing the Idea Investor that you and team are the right people to attack this problem (as they likely don’t have a strong relationship with you or the team). Often an influential Idea Investor makes a good early board member for the company.

The Once Removed Investor: The Once Removed Investor is likely connected through a personal or professional relationship with either the Relationship Investor or the Idea Investor. They likely don’t know you, and they likely don’t have a clue if your idea is good or bad but they have translated the trust in the investment to the person they know. This is a great way to get additional Angel Investors onboard, but without a solid Relationship Investor or Idea Investor it just isn’t going to happen.”

Read the rest of Todd’s article, it’s great.

Via: Ask the VC.

Topics Angels · Case Studies

4 comments · Show

  • Permjot Valia

    One of my golden rules when is investing is no Friends, Family or Fools. Simple but works. Interesting post

  • Joely

    More categorical than taxanomic; it’s flat, taxonomies imply hierarchy. But I like it also 😉

  • Shafqat

    I agree that emotional or personal investments suck, but the cost of capital is relatively inexpensive compared to the other categories of angels mentioned above. If I can get a decent chunk of money with that costs me negligible equity, why not pull the trigger?

    Playing a bit of devil’s advocate here, because we’re in a situation now where we might be raising some money, not because we absolutely require it, but because we want guidance/expertise/networks and help with distribution. As such, its the non-monetary value add that makes raising money attractive for us.

  • vipin

    Great information. I’ve relied on my family for my past ventures and though you should never mix family (and friends) with business, it does provide more motivation than ever to succeed.