What are the signs of a bad fit or a red flag when dealing with angel investors?

Angel investors are individuals who provide funding and mentorship to early-stage startups in exchange for equity or convertible debt. They can be a valuable source of capital and advice for entrepreneurs, but they can also be a source of frustration and disappointment if they are not aligned with your vision, values, and goals. How can you tell if an angel investor is a good fit for your startup, or if they are a red flag that you should avoid? Here are some signs to look out for when dealing with angel investors.

1 Lack of interest

One of the first signs of a bad fit is a lack of interest or enthusiasm from the angel investor. If they are not curious about your product, market, team, traction, or challenges, they are unlikely to be a supportive and engaged partner. They may also have unrealistic expectations or demands that do not match your stage or potential. Look for investors who show genuine interest and excitement in your startup, and who ask relevant and insightful questions.

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John R Grizz Deal

Executive Chairman & CEO, IX Power Clean Water, Inc. | Writer & Speaker on Energy, Water, and Technology Commercialization.
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In my experience it’s a good idea to also establish some basic guidelines for how your angel will interact with your company. The worse thing you can do is end up with an investor that wants your job (unless that’s what you want) and or one that meddles in day to day operations. I’ve told investors “as CEO I work for you, but the employees work for me” to ensure they know there are clear boundaries.

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2 Poor communication

Another sign of a bad fit is poor communication from the angel investor. If they are slow to respond, vague, or evasive, they may not be serious or committed to investing in your startup. They may also be hiding something, such as a conflict of interest, a lack of funds, or a bad reputation. Poor communication can also lead to misunderstandings, delays, or disputes later on. Look for investors who are clear, transparent, and responsive in their communication, and who respect your time and deadlines.

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John R Grizz Deal

Executive Chairman & CEO, IX Power Clean Water, Inc. | Writer & Speaker on Energy, Water, and Technology Commercialization.
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It’s a real good idea to establish specific communication channels and when you will provide formal information. Don’t be afraid to set out what you need from your angel beyond cash and ask them to define what they need from you.

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3 Misalignment of values

A third sign of a bad fit is a misalignment of values between you and the angel investor. If they have a different vision, mission, or culture than you, they may not share your passion or purpose. They may also have a different risk appetite, growth strategy, or exit plan than you, which can cause conflicts or disagreements down the road. Look for investors who have a similar or complementary values system as you, and who understand and support your long-term goals.

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4 Lack of expertise

A fourth sign of a bad fit is a lack of expertise or experience from the angel investor. If they do not have relevant knowledge or skills in your industry, market, or domain, they may not be able to provide valuable feedback, guidance, or connections. They may also have unrealistic or outdated assumptions or biases that can hinder your progress or innovation. Look for investors who have relevant expertise or experience in your field, or who can bring diverse and complementary perspectives and resources.

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5 Lack of trust

A fifth sign of a bad fit is a lack of trust or respect from the angel investor. If they do not trust your judgment, vision, or capabilities, they may try to micromanage, interfere, or undermine your decisions. They may also disrespect your boundaries, privacy, or autonomy, and demand excessive control, information, or involvement. Look for investors who trust and respect you as the founder and leader of your startup, and who empower you to make the best choices for your business.

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6 Lack of references

A sixth sign of a bad fit is a lack of references or testimonials from the angel investor. If they do not have a track record of successful investments, happy founders, or positive reputation, they may not be credible or reliable. They may also have a history of unethical, unprofessional, or predatory behavior that can harm your startup or reputation. Look for investors who have a proven record of supporting and adding value to startups, and who have positive feedback and referrals from other founders or investors.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Laura A. Gray

Regional Director | Passion for People, Profit, Purpose & Partnerships |
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Loss of control: Angel investors typically invest in exchange for equity in the company, which means they become partial owners. This can result in a loss of control for the founder or original owner OR it can be a significant benefit with his/her/their expertise. Exit strategy: Angel investors typically expect to see a return on their investment within a certain timeframe. If the company does not have a clear exit strategy, this could create tension between the investor and the company. Reputation risk: Depending on the reputation and history of the angel investor, being associated with them could negatively impact the company's own reputation.

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İskender Dirik

VC + Fundraising & Storytelling Advisor ⦿ MD/Partner @ Delin Ventures, INFINITE DISRUPTION, 2hearts ⦿ EQT Ventures, Microsoft ScaleUp, Samsung NEXT Ventures, Wix.com, No Label Ventures, ...
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No evidence about their added value: Most investors claim that they provide "smart" money and will help founders operationally. Challenge that hard. It's easy to make these promises. Ask angel investors and, most importantly, their portfolio founders how the angels helped the startups to grow – demand concrete examples. As a side effect, asking these tough questions will also increase your perceived value and confidence as a founder.

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What are the signs of a bad fit or a red flag when dealing with angel investors?

1

2

3

4

5

6

7

1 Lack of interest

2 Poor communication

3 Misalignment of values

4 Lack of expertise

5 Lack of trust

6 Lack of references

7 Here’s what else to consider

Entrepreneurship

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What are the signs of a bad fit or a red flag when dealing with angel investors?

1

2

3

4

5

6

7

1 Lack of interest

2 Poor communication

3 Misalignment of values

4 Lack of expertise

5 Lack of trust

6 Lack of references

7 Here’s what else to consider

Entrepreneurship

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