Role Of The Angel Investor: Angel Investors On Company Board
An angel investor as we all know is a rich and affluent individual who provides you with the funds you need to start up your business and to give your business idea a physical form. The role of an angel investor through out the whole process is very important. An angel investor would provide you with the requisite capital and in return, he would have his “terms and conditions” set on the basis of which he would offer you the investment or the funds you need. Thus the angel investors’ role is not just providing you with the funding you might need but he is also there to guide you and act as a mentor for most of the times.
Many entrepreneurs today undervalue the difference between a board of directors during the start-up stage of the company and a board of directors once you have taken your first check from an angel investor who wishes to have a role and be a part of your board.
The role of an angel investor is very crucial for any person looking for investment. Most angel investors today make investments that range from £6,000 to £35,000, so when you ask an angel investor to join the board of your organization, the dynamic of your board meetings is likely to change from a consultatory, problem-solving environment to a performance ridden and responsibility driven environment, but normally, this happens only when you invite in bigger angel investors with more at stake. The role of an angel investor today as part of an advisory board is not uncommon. Angel investors who contribute £25,000 generally do tend to behave more like advisors even if they are a part of the board.
The role of the angel investors as a part of the company board cannot be undermined as most of the angel investors today seek and want a seat on the board of directors of the organization and they also hold the entrepreneur to a stern set of targets for sales for about at least the first one to two years. Angel investors initially take an accumulative convertible preferred stock position. They allow the company to postpone fixed cash dividends for about four to eight financial quarters while still holding seat on the board and they keep the entrepreneur bound to the same performance measures as defined in the first format.
The role of angel investors is growing each day as a part of the company’s board. Angel investors take a common voting direct equity position, get their place on the board and such but angel investors are also actively involved in taking care of the company management. Some angel investor’s – as a part of their role in the company’s board could want to bring in about one or two associates for a period of about 12 to 18 months to assist and help them with certain operations, marketing responsibilities and distribution launch. This role of an angel investor can generally be the best of the situation for an entrepreneur as well as the angel investor. The owner in this case gets the funding he requires as well as the addition of one, two or more people with a good business experience to help his business get going and working while with the role of the angel investor being involved, the investor gets his voting equity stake as well he gets his hands on the involvement needed in running the company to lower some of the sensed risks.
As the role of an angel investor is concerned, they usually like to invest in organizations that are close by to where they live or work so that they can visit the organization often and participate in its board and other meetings. As a matter of fact, in a survey conducted by an organization, it was shown and proven that about 70% of angel investments that the angel investors do are made within 70kms of the angel investor’s office or residence.
Almost all the angel investors today in return for their angel investors’ role want a board position and many a times a consulting role as well. All the angel investors also want good communication with the organization and the other board members, but for some that simply means reviewing quarterly reports, while for other angel investors’ that would mean weekly updates. This shows that most angel investors take their role not just for granted while being a part of the board, but they are actively involved in reviewing reports and meetings. The angel investors also expect a certain return when they take up a role as an investor and invest money or fund a business and the return objectives could range from a projected internal rate of return of about 30% over 5 years to sales projections of $20 million in the first 5 years to the potential return of 5 times the investment in the first 5 years.
When angel investors request a seat on the Board of Directors and/or if the angel investor takes an active management role in running the company, then this can be comprehended as both good and bad. This is good in the sense that most times the experienced angel investors provide worthful insight to the entrepreneur and also being a mentor to them and helping them throughout the venture to ensure that the company they have invested in reaches to success, but there is also a downside to it when the angel investors want to take up a role in the board of the organization and that is giving up a specific percentage of ownership to him. The more ownership that the entrepreneur gives up, the more overall control they start to lose.
Because of the fact that an angel investors role in the company is important and that the angel investors hold a minority position within a company, they are also responsible for win over the shareholders to agree with any of the following.
If an angel investor feels that the management team or the board is weak and not really productive, they he/she can replace the founders in the management team and/or they can change the board of directors.
- When an organization is not able to make enough profits or is almost on the verge of bankruptcy, then angel investors’ here can take up their role and provide any additional funding wanted for the organization by their own selves.
- When angel investors do not wish to re-invest in the same organization, then they can raise the extra capital from new investors.
- If an angel investor’s role has been more passive in the company before, then they can take more of an active role in every day operations to ensure quality assurance.
- An angel investor also can sell the organization or merge the firm with a larger business.
- An angel investor can decide to consume or deplete the entire firm’s cash and then close the organization doors forever.
- All the assets of the organization can be sold off.
An angel investor rarely does stay on the company’s board until the company reaches maturity. Thus, the role of an angel investor in the company’s board and other decision making is very important and it can really help you achieve the targets you have been looking ahead at and getting the organization scale new heights and succeed.