Entrepreneurs and Angel Investors: They Might Not Be So Heavenly

Jul 2, 2014 | Entrepreneurship, Financial Health

For many aspiring entrepreneurs, an Angel investor may indeed seem like a gift from above.

Unfortunately, the name “angel” means very different things to different people. Simply an infusion of capital? Ownership in your company? A say in day-to-day operations? Aggressive investment terms? I’ve seen entrepreneurs deal with it all. One common request is an ongoing percentage of your profits, with no cap on the upside.

Three important points for any entrepreneur who is considering working with angel capital:

  1. Be sure that you and the Angel are very, very clear on what their role will be.
  2. Don’t necessarily jump to accept the very first offer an investor presents.
  3. Seek appropriate legal help when negotiating terms and contracts.

You don’t want to negotiate this on your own. Sure, you might avoid paying legal fees at first, but you’re likely to end up paying out hundreds of thousands of dollars later. And you can be stuck with someone who is entitled to a never-ending stream of profits, without necessarily contributing anything to your company.

Like this article? Check out my column, Dollars and Sense, at Inc.com


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