Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups

13

After the Investment

Managing Your Portfolio and Adding Value as an Active Angel

THE MINUTE YOUR investment is transferred to the bank account of a startup, the relationship between the two of you enters a very different phase. Up until that moment, in most cases you are Lord or Lady Bountiful, and the entrepreneur is an obsequious supplicant. But from that moment forward, how you interact with your portfolio company lies somewhere on a wide spectrum that is defined by the relative power positions, maturity, and sophistication of both parties.

On the one hand, if you are a small investor tagging along as part of a syndicate and don't have many explicit rights as part of the investment terms, you may literally not hear from the entrepreneur again until you get an email telling you that the company has been acquired or shut down ... and you may not even hear about that! This may happen despite what is almost certainly your right to receive annual reports.

On the other hand, if you are the lead investor with a significant equity interest in the company and the right to a board seat (or even board control) through a shareholders' agreement, then you have a great deal of influence on the company, and will likely be in communication with the CEO on a monthly, weekly, or even more frequent basis.

In most cases, however, the relationship will fall somewhere in the middle ground: the company will send you annual—or perhaps even quarterly—financial reports about its progress, you may ...