In startup funding, the investor is usually seen as the one in control. That’s how the industry positions it, anyway. Investors guide the conversation and decide whether the relationship is likely to have legs. The opinions of the business in question rarely seem to count for much – they need money, so they should take what they can get.
It’s an unhealthy dynamic, and yet it predominates in the startup arena. Angel investing may well be the only way that some small businesses can get off the ground, but capital at any cost can do more harm than good. It’s time to start building business–investor relationships that recognise the value, choices, and responsibilities of both parties.
Mutual due diligence is a must
There’s no getting away from the fact that businesses need money to survive. But working with the wrong investor can be catastrophic. If you don’t share an understanding with your investor, don’t have the same outlook, values, or even strategic expectations, the relationship is likely to break down, leading to misunderstanding, miscommunication, and conflict. That’s not good for either party.
The problem is that the industry drills into founders that they must find investment, and that any investment is inherently good. As a result, whole swathes of startups are finding themselves tied to investors who simply aren’t the right fit. Don’t make that mistake.
For an investor–business relationship to work, founders need to understand that they have the power of choice and the right to use it.
Why founders shouldn’t be afraid to reject an investor
Founders have choices. But it doesn’t often feel that way when it comes to investment. Coached into believing that beggars can’t be choosers, founders find themselves bending over backwards simply to please the people with money.
Yet the wrong investor can have just as much impact on a business as the wrong employee – and potentially more so, because you can’t simply hand an investor their P45. That makes it vital for founders to set boundaries, ask questions, and take time to consider every prospective investment offer.
Some investors may resent that, but if they do, you can probably take it as a red flag from the get-go. No sensible investor wants to work with someone who makes rash decisions, and no founder should feel pressured into them.
While the right investor can transform a business for the better – providing guidance, insight, and support – the wrong investor can destabilise the company in a multitude of ways, bringing stress and hampering decision-making at every turn. By carrying out your own due diligence before accepting an offer of investment, you can protect yourself against these problems and stay in control of your own business journey.
What should founders be looking for in an angel investor?
As an angel investor, I only partner with founders whose purpose and direction make sense to me. It’s essential that I can believe in what they’re building, because that’s when I know I can add real value.
When you’re looking for an investor, choose someone who understands your mission and is willing to work around your long-term goals, not bend them out of shape. If they have a background that complements your business or sector, that’s even better, because they may be able to support you in other ways – opening doors, sharing networks, or challenging your thinking in productive ways.
Doing your own due diligence can protect you from working with anyone with a reputation for micromanagement or unnecessary friction, and help you choose an investor who has already proved themselves in early-stage investing.
Before I start working with any new business, I also make it a point to have upfront conversations about what involvement might look like after the investment. Clarity early on prevents confusion later. The goal should always be a partnership built on trust, transparency, and shared expectations.
So, do your homework, be prepared to ask tough questions, reach out to founders they’ve backed before, and make sure both sides are aligned before you sign anything.
Why angel investors need to look at more than a startup’s metrics
Metrics matter when you’re investing in a new business, but they’re not the only consideration. Financial clarity is a must – if a founder doesn’t understand their own financials, can’t explain the details behind their forecasts, dissect their revenue model, or break down their burn rate, they probably lack the clarity of vision I need to see before I invest.
Data can tell you a lot, and ideas can be inspiring, but if they’re not guided by a person with the understanding, vision, leadership, and resilience to make informed decisions and carry the business through, then, with the best will in the world, that business is unlikely to succeed.
So, yes, look at the pitch deck, pore over the numbers, and make sure the investment prospect has a genuinely scalable market. But look at the people, too. Talk to them. Test their assumptions. Assess their understanding.
The investment model needs to change
The existing investment model is flawed. By putting all of the power into the hands of the investor, we’re setting startups up to fail. Founders are so desperate for cash, so eager to please, that they’re willing to accept compromise – on terms, on control, sometimes even on their own vision.
And it’s not working. It’s time to foster an investment environment that gives founders a voice and a genuine chance to make decisions that work for them as well as their backers. Because without shared vision, trust, and transparency from both sides of the table, the road ahead can only ever be bumpy.
