Dr. Dan — The Burdensome Investor
Raising capital is hard. Raising capital during a pandemic can feel impossible. As we discussed with Lolita Taub in our webinar last week, more founders are looking for alternatives to venture capital.
Founders are looking to solutions like Pipe, Earnest Capital, ClearBanc, Angels, Friends & Family, among others. Raising from angels and friends/family came into focus during our webinar with Lolita. Note: Check out our “How to Find Angel Investors” guide if you’re searching for angels for your business.
Friends and family often make for an easier fundraising process. Less stringent due diligence combined with less pitching can make friends and family be an attractive option. However, a friend or family member could be less startup savvy than a traditional VC and can become a burden to you and your business.
Internally we call the burdensome investor, “Dr. Dan.” Maybe a family member or friend invested in your business but calls every week for status updates or to ask questions about a metric, etc. With the investor + founder relationships (8-10 years) lasting longer than the average U.S. marriage it is important that you are taking on investors that you can build a relationship with. So how do you approach a potential “Dr.Dan?”
Set Expectations Early
As we previously mentioned, a friend/family or angel investor may not be as startup sophisticated as your traditional VC. Sometimes an inexperienced investors’ expectations may be wildly different from reality. It is your job as a founder to make sure a potential angel investors expectations and reality are aligned.
Before you cash a check, make sure that these investors are aware of the realities of investing in a startup. Make it clear how and when they will hear from you, what the possible outcomes are, and where their capital will be going. Even though someone is an “accredited investor” they are investing their own money and it could be a considerable chunk of their savings.
Explore Other Options
If you’re talking to a potential “Dr. Dan” you may need to weigh other funding options. As we mentioned at the beginning of the post there are quite a few alternatives for raising capital. While the most ideal is using customer revenue to fuel growth, that is generally not an option for most startups — especially early stage.
There are countless alternatives and more popping up every day. You can check out a few of our favorite alternatives here.
Trust Your Gut
As Lolita Taub put it in our webinar, “You just have to hustle and do what you need to do for your business.” At the end of the day, only you know what the right decision is for your business. If you’re in dire need of capital, it may be worth the burden of bringing on a “Dr. Dan.” If you’re in a good spot financially, it may be time to re-evaluate and take your time to explore other funding options.
There are countless pros of bringing on a new investor — capital, new networks, fresh eyes, etc. On the flipside, an angel or family/friend investor can quickly become burdensome if they are inexperienced or unsure of what to expect from you. Remember bringing on a new investor means bringing on a new business partner for the foreseeable future — only you know what the right decision is for your business.
Already have angel investors? Send them a quick Update to let them know how your business is doing.