good story Sahil! find it enthralling to read honest disclosure about battle scars that one is able to come through via persistence and passion.

we also have angel investors though we call them “angels with teeth”. sort of dovetails with you comment about sharks circling.

we also decided early on in the investor relationship – that, “they are not our friends”.

two healthy catch-cries i reckon for entrepreneurs to keep in mind before taking on investment.

Steve

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Sahil Merchant Reply:
July 29th, 2009 at 5:08 pm

Thanks Steve – glad you are enjoying my rants!

I actually have a very good relationship with my investors. I consider myself to be on quite friendly terms with them. However, we all know that I am here to do a job for them, and they will take me to task if I fail.

I think one can be friendly with investors, but it has been imperative for me to understand that we are all inherently self motivated, and where our interests digress, they will adhere to their own agenda. I am sure you will agree that too many people get suckered into believing that angel investors (compared to the big firms) are on “your side”.

I don’t mind my angels having teeth. In fact, I think it is healthy.

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Hi Sahil,

Appreciate your honesty, as usual. The strength in character is admirable. Just finished reading a book by Felix Dennis. Dude made me laugh, and almost want to vomit at times. “How to Get Rich” which has the title you’d expect from someone whose not used to hiding anything. His openness reminded me of your posts and how extremely useful information never makes it out unless a few people are willing to be generous and let it all out.
I think we all owe you a beer.

Pieter

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Nice post. We have an angel investor who, I suspect like your venture, is backing me/us rather than the business per se.

He is remarkably reasonable, but I am always aware that it’s his own (hard earned) money on the line. There’s no easy money – but this is how it should be.

Start-ups are brutal financially for those on the line; your post brings this to life nicely. It’s tough. Very, very tough to create something that wasn’t there before.

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Great article!

As an angel myself it is refreshing to see someone who understands we are not just there to buy people jobs. I have had many varied experiences in my ‘angel’ role varying from brilliant companies that consistently over deliver and continually consult and update to the others who lie through their teeth and disappear from contact when they cant hide the emerging problems. A recent example appears scathing but is not untypical of what can occur. This is why the honest entrepreneur then wonders why they are being treated with some level of distrust.
This particular company put off signing the documents [a CN] after I had spent in excess of $20k on the agreement because they wanted the money but didnt want to share the upside. The founder then attempted to get her family’s money through as a company loan to be paid out of the investment and falsified accounts to show less liabilities.
I pulled out, got my loaned money back and accepted the $20k loss on the legals as a better option than continuing with a dishonest entrepreneur. She may succeed still as she is very persuasive, as are the most dishonest, but those acts do not go un-noticed.

I look at entrepreneurs as basically liars until proven otherwise. Slightly unfair I know but for every company placing all on the line there are 99 who expect the investor to bear all the risk whilst they [the founders] reap the rewards. If family and Friends have backed a company to the point of risking all then the investor feels as though they truly believe in their ability to deliver. Not many people are willing to dupe their family and friends.

I could name a couple though!

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Hi Sahil,

Thanks for that very real and refreshingly balanced view of your experience. As entrepreneur-turned-angel I still feel a little awkward when I hear myself saying to entrepreneurs the things investors once said to me.

I try to avoid unnecessary angst but, we all know there are some lessons in life that can never be entirely easy, some wisdom we can only appreciate through experience. Equally, pain for its own sake is pointless. Key among the benefits Angels have to offer are the foresight borne of experience and the tactics learned in the trenches. Together with other contributions, these enable us to shortcut much of the pain in the learning and evolution of the business. Notice I didn’t say the entrepreneur’s pain because while that is definitely the hot seat, an active investor – an angel investor – feels the pain too.

Hopefully entrepreneurs get the opportunity to choose the right investors for their business. Who are the right investors? Ones you can work with!

As Sahil has pointed out, while the relationship may come with some hard lessons, it doesn’t have to be – it shouldn’t be – adversarial. “Alignment” is the essential foundation for a successful early-stage investment, alignment of expectations, commitments and goals. You don’t have to become friends, confidants, mentor-protege but, you do need a workable base for mutual trust.

Personally, I believe that the best early-stage investors are usually those who have been through the entrepreneurial wringer themselves and have both learned their lessons and are good at using that learning to help others. Logic suggests that if they are active as investors that they have enjoyed some degree of success but, don’t be misled, most angels are not throwing around millions of dollars.

Thanks to all the entrepreneurs – without you, there’s no point in investors!!

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Another wonderfully candid post, Sahil.

Angel-entrepreneur relationships vary greatly, but they are often derailed when that relationship becomes too personal; where the mentor-protégé dynamic becomes too one-sided and both parties lose sight of the end goal – a successful exit and the accountability that is required to deliver this.

I’m sure a few of your angels smiled when seeing you describe them as ruthless. It’s really a compliment, acknowledging that they are vigilant in keeping sentiment from clouding their judgement. If they didn’t respect you, they wouldn’t have invested.

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Another insightful and candid post Sahil !

I believe the frequent “great divide” between the expectations of entrepreneurs and angel investors can be partly attributed to the misnomer of the title given to this form of investor. They are certainly not “angels” in the normal sense of the word.

I fear that first-time entrepreneurs who haven’t been around the investment scene before can easily misread the make-up or intentions of people who are introduced to them as “angel investors”. Similarly, groups of “angels” can readily assume too much of a “we’re really helping you out here son” attitude merely by donning the angel tag.

The fact is, these people are (or should be) prospective Business Partners.. and for me, the sooner the “angel” tag is dropped, in favor of a better description for this form of investor, the more the expectations of both parties may be more practically aligned from the outset.

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Sahil Merchant Reply:
July 30th, 2009 at 1:47 pm

I never actually refer to my funders as “angel investors”. I agree with you that it is a stupid term. I simply call them investors, private investors, or most often, my shareholders.

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sahil – great blogs. i read them with interest (along with your magnation blogs). i admire your commitment and bravery – as you know, something i could never do myself (probably because my business ideas are all rubbish!).

go blues!

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2nd time I have read your blogs. I admire your frankness and willingness to tell it how it is for you. It sure resonates with my own experiences. Keep it up. PS – your commitment is total. Provided your money is 1st in and last out your Angel Investors can sleep well with you looking after your (and their) investment.

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sahil – have empathy with the journey you have described re:
1.Begging and borrowing from family and friends
2.Extending myself financially beyond what is wise
Even when you know it to be true it is always good to remind yourself through others honest experiences to keep on keeping on.

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