For the last couple of weeks, I’ve been writing about Yellow Shoes, the founder of a very promising start-up which was funded while still in concept stage by a couple of angel investors… who proceeded to take over control of the company in the process.
By now, you may be wondering why anyone would want to take on angel investors who just want to take over your company. And true, it may be daunting looking over a term sheet which demands a 45% stake in your company.
Still, taking on an angel investor is still be the best choice for many founders. Even in the case of Yellow Shoes who lost control of her company, the angel investors brought a lot of value to the table which translated into major assets which got her company off the ground very quickly.
Mostly obviously, the angels brought money which allowed Yellow Shoes’ company to grow at a pace which quite frankly would not have been possible otherwise. Remember 100% of a company that’s not growing, is 100% of a very small pie that’s probably not be going anywhere. Taking an outside investor is tradeoff to get necessary capital, and many successful companies would have been spinning their wheels otherwise.
Yellow Shoes’ startup had very high customer acquisition costs, and without that quick infusion of cash, getting the business up and running and building momentum would have been highly unlikely. 40ish% of a growing pie is still a lot better than 100% of nothing.
Moreover, a reputable angel can bring a lot more than money to the table. Advice, mentorship, and contacts are all significant reasons for startups to bring in an angel investor who is invested in the company. If your startup needs a few key partnerships to get off the ground, the right angels can provide the strategic introductions and assistance to make them happen.
Even in Yellow Shoes’ case, where the angels came in and took over the business operations of the company, it may very well be a very good thing for the company.
It may not sound too enticing to many founders, but think of it this way… the angels took over the business side of the startup which was their strength. They relieved Yellow Shoes of the responsibilities and headaches of business side of the startup, leaving her to concentrate on the creative side which she enjoyed and excelled at. In many ways, the startup is in the best position possible to flourish.
What does your startup need to flourish?