Entrepreneur Myths (26 page)

I’ve been told that if you want to fund a film for under $5 million, get money from doctors or dentists because that is dumb money. I don’t recommend it because you want to get money from angels who know what the hell they’re doing. Besides, not all doctors or dentists are dumb money. Anyone who tells you this is extremely naïve. It is critical you recognize what angel capital is and what it can do for you, or you’ll get angel-ized. In other words, you will get your ass kicked by a smart and devious angel.

Angels come in many forms. When you approach an angel, you have to figure out what kind of angel you face. I developed my own categories to describe the types of angel investors you might encounter. You can tell the type of angel by the (1) color and size of their wings, (2) color and size of their halo, and (3) color and size of their appearance. After all these years, this is the best method I’ve found for classifying them.

The color and size of the wings indicates the amount of money an angel has at their disposal to invest. The greener the wings, the more money they have to invest. The bigger the wings, the less control they require, and the less micromanaging. The taller the angel, the more experienced the angel. And the greener the color of the body, the more successful they have been — which could be an indication of their ability to attract other angels to your deal.

There are many variations of angels. I created a general list of the various types of angels, so you can figure out what kind of angel you have in front of you when you’re pitching for money:

Sugar Daddy or Sugar Momma Angel

This is an angel so wealthy they don’t worry one iota about losing money. Sugar Daddy or Sugar Momma is so powerful that most times they are like a father or mother figure to the entrepreneur. If you find one of these, consider yourself extremely blessed. They want to help the entrepreneur succeed because they love entrepreneurship, and love to help create new ventures and industries. They will be angelic as long as you have a truthful relationship with them. Never bullshit Sugar Daddy or Sugar Momma. Got it? This type of angel has large, thick, dark green wings — full of cash.

Silent Angel

This angel is wealthy enough to say very little, because they’re too busy doing their own thing. Silent Angels are most likely either running their own company or companies, have cashed out, or won the lottery. They might have business experience or they might not. One thing is for sure: they don’t want to roll up their sleeves beyond sending money to you. For them, laying out on the beach or sitting in their yacht in the British Virgin Islands, enjoying a bottle of fine wine with beautiful and smart friends, is much more fun than working 20-7-365.

This angel already made the entrepreneur journey and made it big. They don’t need to repeat it. They’re enjoying the wonderful fruits of their success — and one way is by investing into a great entrepreneur like you. They are happy to live the entrepreneurial life vicariously through you. These angels have green wings but their wings may not be as large as Sugar Daddy’s or Sugar Momma’s wings. Consider yourself lucky to find one.

Micro Angel

This angel is wealthy enough to be able to find the damn time to micromanage the entrepreneur — which would be you in this case. They don’t have a life, despite being successful, and they want to ride your ass. If you find one of these angels, make sure you know it. They will drive an experienced entrepreneur fucking crazy, because you won’t have time to deal with this armchair entrepreneur on a daily basis.

You’ll be busy trying to run a business but having to take phone calls from Micro Angel or they’ll blow up your phone.

Micro Angel wants to know every damn detail in running your venture. Hell, if they had it their way, they would have an adjoining office or desk right next to your ass so they could debate every decision you make, right down to the color and texture of the toilet paper in the bathroom.

This angel is a complete control freak and sometimes acts like an arrogant son-of-a-bitch. Self-denial is an ugly thing because they don’t see themselves as control freaks at all. You have to flush them out. Ask their spouse, friends or partners whether they’re control freaks, in a way that doesn’t offend them. This type of angel may have large green wings, but they are stained with blood.

CEO Angel

This angel will fund your venture then toss you to the curb and take over as CEO. If you find one of these angels, you’d better suck it up and let them lead the way. Some CEO angels don’t even hide their intentions from you. They tell you directly or drop comments along the way.

If you’re an inexperienced entrepreneur with a big idea, and CEO Angel is willing to put some serious money down, you might need to consider it seriously — if nobody else has come to the table to invest. If you’re an experienced entrepreneur, do not take the money unless you’re prepared to bicker and fight. Hopefully, there will be no need for boxing gloves, but take a boxing class just in case. Throw in some kickboxing, too.

Some years ago, I had an angel investor who wanted, not only to fund my venture, but also to run it with me fulltime. He wanted to be active. The bastard had nothing else to do — so it seemed. I had no problem with that idea at first. This angel was knowledgeable about the sector, had cashed out, and I needed all the help I could get. But in a few weeks, his devotion to the startup went from 20-7 to 1-7. Hell, I couldn’t get a hold of the asshole because he was too busy enjoying the fruits of his previous labor. I don’t blame him for wanting to enjoy life. But it got so bad his wife jumped in to help me with logistics because she felt bad about his lack of effort.  The irony is that she did a better job than he did — and he was “the expert.”

The CEO Angel has red wings and one of them is clipped because their intention, at times, is not in the best interest of the venture.

Wannabe Angel

This angel thinks they can invest but really can’t afford it. Most likely they’re not an accredited investor. As an entrepreneur, be careful whom you take money from because Uncle Sam (the SEC) wants to make sure you follow their rules.

Sometimes it’s hard to figure out ahead of time whether the angel is accredited. Ask them, in various ways, whether they can afford to lose the money they’d invest without losing sleep. You could just ask them if they’re accredited, but you still need to verify it. A Wannabe Angel might be delusional. They may think they are ready to invest, but in reality they may not have what it takes to be an angel.

Conduct some angel due diligence. Does this angel really know the odds stacked against them when they invest? Are they investing because their buddies are investing? Do they know anything about the sector? Are they clueless, have low self-esteem and/or are trying to prove to someone they’re a wheeler-dealer, when in reality they worked at the same job for 15 years and have never taken a risk?

I have met countless Wannabe Angels. They waste an entrepreneur’s time and energy by acting as if they have loads of money to invest. They actually believe $5,000 is a huge investment. If you have found one of these angels, drop them like a hot potato, especially if they are not accredited.

The key problem with Wannabe Angels is that you’re dealing with nervous capital. If they are investing their life savings into the venture, be careful not to blow their money by failing. Otherwise, there could be unpleasant repercussions. Wannabe Angel has clipped wings as well, since the amount of capital they have to invest is small, relative to their risk appetite.

Devil Angel

This angel is either extremely wealthy or does not have a pot to piss in. Either way, their entire objective is to seize control of the entrepreneur’s venture. They’ll maximize their investment by diluting your ownership, and then they’ll bring in one of their evil cronies to run your company.

I’ve seen and experienced the Devil Angel. One of them invested into one of my ventures. If you meet one of these angels, run like hell! They are extremely dangerous. They might appear in angelic form, but behind those heavenly wings you’ve got a motherfucker devil on your hands.

The wealthy Devil Angels have the capital to fuck you over in a million ways. They are patient enough to wait for your weakest moment, and then move swiftly to cut off your head. Their motivations for being Devil Angels vary, but the primary reason is to take over your business and maximize their own investment returns. It’s all about maxing out the ROI — even in angel land.

Devil Angels without substantial capital must be watched carefully because they may know other bloodsuckers that could come in to help take over your venture. Obviously, Devil Angels have tiny red wings stained with entrepreneur blood.

Vampire Angels

These bloodsuckers show up when your business is about to go bust, and you need an infusion of cash immediately, preferably yesterday. Their primary purpose is to come in at the absolute last fucking moment by positioning themselves as the white knight to everyone.

These angels love hanging around the bankruptcy proceedings of failed companies, scouring for valuable assets. Beware — these angels will suck the blood out of your business, or whatever is left of your business. They have no heart. It’s all about the money. They don’t give a shit who they hurt along their way to making a profit. Their fangs are long and their execution as swift as a vampire in the movie
Twilight
. They’d even sell their mother for a profit.

You can identify Vampire Angels by figuring out how they made money from their previous ventures. I Googled one potential investor from Los Angeles. He seemed like a likeable guy, but I discovered he had been in prison and had sued Google to remove that information from the search engine. This Vampire Angel had a beautiful office in Los Angeles, hung with a rich crowd, but was infamous for fucking people over in deals. I confirmed this through multiple sources.

Vampire Angels have wings — bat wings. They also have big fangs. Run like a cheetah from them.

By the way, if you’re looking for Super Angels, there is no such divine entity. As Mark Suster, a brilliant venture capitalist of GRP Partners, said, “Super angels are a myth.” He dubbed Super Angels “micro VCs” because they are using other people’s money (OPM). He’s right.

My advice: Take time to figure out what kind of angel you are dealing with before you take their money. Too many so-called angels end up either being Micro Angels, Wannabe Angels or worst of all, Devil or Vampire Angels. Sugar Daddy and Sugar Momma type angels are the ideal investors for a startup — if you’re lucky enough to find them.

Brain Candy: questions to consider and ponder

(Q1)
Have you ever raised capital from angels? How was that experience? Was it positive? Was it negative?

(Q2)
Did I miss any angel classifications?