A Real Angel Investor Never Obsesses Over Equity Percentages
There are various definitions of angel investors, but here I’ll try to define a true angel investor by looking at it from the angle of “don’t team up with these fake angel investors.”
Don’t team up with fake (pseudo) angel investors like these!
① They obsess over equity percentages
Most angel investors have already cleared one lap of life’s board game. Some made large capital gains from their own businesses or startups they were involved in; others spent many years as executives at major companies before stepping down.
The foundation of angel investing is that, alongside pursuing their own new challenges, these people invest to support the potential of young people and bold attempts. Most of them aren’t grasping, and they don’t fuss over minor differences in amounts — they already have plenty.
If they do complain about their shareholding ratio, it can only be in the context of “an argument to protect the founder.” Cases like a particular VC being given too high a stake, or conversely, worrying too much about keeping the ratio down and letting the valuation rise too far, creating a risk that future fundraising becomes difficult.
Any angel who starts fussing about shareholdings outside of that context is a devil wearing an angel’s skin. In general (as far as I know), even angel investors who put in a few million yen at founding typically end up holding only a single-digit percentage, and on the low end of that, after being diluted through Series A and beyond.
Occasionally, when you look at a prospectus at a startup’s IPO, you find some early investor holding a huge stake and think “who is this?” It’s genuinely disheartening. Truly unpleasant.
② A “this is my business” attitude peeks through here and there
It’s a very good thing when an angel investor is passionate about the business they’ve invested in, but unless they maintain their position strictly as a “supporter,” they risk becoming an obstacle of various kinds as the business moves forward. Advice and tough love are fine, but once it reaches “just do what I say,” that’s a serious problem.
Money doesn’t really matter much, especially to those who already have it. What deserves real gravity is that people with almost nothing else are devoting 100% of the only things they do have — “time,” “brains,” and “passion.” Respect is something you all deserve to receive.
③ They only have money
An important role of angel investors is “connecting startups with society.”
There are quite a few cases where entrepreneurs and their early team members lack points of contact with society. Some are student founders, and even working adults among them often only have experience in a fairly narrow domain. They have no connections to VCs, no connections to clients, no connections to development partner companies — nothing at all. Angel investors are one type of supporter who function as “experienced mentor figures” in such moments.
Someone who merely inherited assets as a family business, or who happened to grab a windfall through stocks or crypto (these days maybe through being a YouTuber too), likely lacks the qualities needed to serve as that kind of “big brother from the business world.”
Fortunately, in Japan there simply aren’t that many “angel investors” to begin with, so it’s rare to encounter someone you’d think “this guy is terrible.” Still, some people out there have run into that rare case, so please, everyone, be very careful.
The content of this post is an excerpt (original text) from the following book. If you’re interested, please pick up a copy.
The Shape of a Happy IoT Startup
The Shape of a Happy IoT Startup
Originally published in Japanese at https://clazytech.com/2022/08/1238/. Translated with LLM assistance and reviewed before publication.