In the first paragraph they talk about how the angel investor has may have a combination of roles.  The role taken on depends on what the need is at the time. The entrepreneur may need the business to take off ASAP or it could be months down the road.  This will determine what type of support the investor will and needs to give. I am going to discuss five fundamental roles in supporting investors. 

First we have silent investors.  These investors do exactly what the title says.  They sit there and do nothing except sign some documents when needed and hope for a return on what they have invested. If the investor has time to jump in and help with possible coaching, they will.

Reserve force investors are ready willing, and capable to help the entrepreneur (Amis & Stevenson, 2001).  They also are able to help with training on raising capital and give strategic advice.  This sounds like someone you would want in your back pocket, having someone that can come through with information you are unable to get yourself. 

Team member role can be a sticky one.  Having an investor become a team member could be tough for the entrepreneur if the investor becomes a micromanager. Having the investor become a team member could also be a very good opportunity for the entrepreneur since they will bring skills to the company that will help the company.  The investor wants the best so they have a good return.  This is where making sure you choose someone you can work with before you go into business together is important.  Everyone needs to be on the same page so everyone succeeds.  This relationship could be good or it could be bad, work together for the best of everyone.

When the investor become the coach, they become very involved.  Do not get this confused with a controlling investor.  The coach is meant to do just that, help the entrepreneur through the process and teach what you know. They provide support, advice, and any assistance needed during this venture.

Finally we have the controlling investor.  They do just what their name says, they come in and take over the company.  Obviously this will cause issues with the investor and entrepreneur.  You have someone who has come up with this business and worked hard only to have an investor come in with enough capital to take it over.

These different roles are a lot to thing about with looking into what type of investor you would want to be.  I can say I would never be able to take over someone’s business like a controlling investor.  I see myself more as a coach as I am one to reach out to people and help in any way I can.  I am also not someone who can sit back silently if I feel something is going the opposite way it should.  I would also hope as an entrepreneur I would be able to make the right decision on who I wanted investing in my company.   

Reference

Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.

7 Comments

  1. Katherine,

    I agree that the reserve forces investor sounds like a really good type of person to have in your back pocket. The information, advice, and assistance they can offer seems like it could be a lifesaver if ever needed. I think the controlling investor would definitely be a source of contention unless the entrepreneur was either looking for an exit strategy or was willing to sellout for the money offered. I personally don’t know that I would ever partner with a controlling investor but I’ve never been in a situation where I would really know either.

    Great read,
    Victoria Price

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  2. Katherine,
    I thought it was interesting that our book gave us these five distinct roles. I am not sure in real life than it is ever really that simple. I believe it would be a mixture of one or two of these different roles rather than just one. For example, an angel would come into a new venture investing as a reserve force. They would also be a coach to the entrepreneur when they are not raising more capital or making business connections. Eventually, they would turn into silent investors after the ‘ship was pointed in the right direction.’

    Joe Rudy

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  3. Hi Katherine,
    To me, the best type of investors would be the coach and reserve. Folks who want to help out and care about the company, but understand that they aren’t fully involved in the operation. I think if I ever dealt with a controlling investor I would return the check or walk away from the company. However, there is always a situation where every type of investor is needed. I think back to my days helping open a local restaurant. Each of the investors started out as a team member. They were in the kitchens daily doing the same work as the rest of us. I think in the service industry this is very common. With such small margins for profit at the start, you must have all hands on deck until serious cash flow begins.
    Only one post left!
    Brian G.

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  4. Some really good comments from folks already here that I also agree with. I agree with Brian that, in my opinion, the best investor would be a “coach” or “reserve.” I know Vicotria also shared similar sentiments on reserve investors. I agree with Joseph that it is probably hard to be one of the five distinct roles, and some blend together.

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  5. Hey Katherine,

    I think one of the more valuable roles would be the coach role where an entrepreneur could get good advice and resources when needed; however, I see in some situations where an entrepreneur was in over their head and approached the type of investor that has had tremendous hands-on business experience in the entrepreneur’s opportunity that a controlling or team member investor role would be appropriate for ultimate success. I think I have seen the team member or controlling investor role take place on the TV series “Shark Tank,” where the entrepreneur had to give up more equity/ownership in the company than they had anticipated. Still, ultimately it was going to be worth it for the company to get to the next level.

    Best,

    Stokes Warren

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  6. Hi Katherine,
    I agree with what you said about seeing yourself “more as a coach as I am one to reach out to people and help in any way I can. I am also not someone who can sit back silently if I feel something is going the opposite way it should.” I don’t think I could sit back and not be involved at all, or even just unaware of what was going on, in a business I was invested in. I think I could resist being involved in the day-to-day as long as I was kept in the loop. I wouldn’t want to interfere or micromanage because I wouldn’t want either of those experience as an entrepreneur from one of my investors.
    -Bri

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  7. Katherine:

    If I ever get into angel investing, I will be a silent or reserve force investor. I feel there are many industries and fields out there that I know nothing about but are attractive financially. As an entrepreneur I would welcome advice from investors, but I don’t think I would be comfortable with them micro-managing me. In a way, that goes against one of the primary reasons I am interested in owning my own business – to be my own boss. Luckily, it seems there are investors out there that would match up with those expectations.

    Adam

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