Capital is, after all, the enabler of progress, opening doors to product development, team expansion, and customer acquisition, amongst other things. But it’s good to remember that some capital can come at a cost, and it’s not always worth paying.

Angel investing is a two-way street, and both sides have a responsibility to do their due diligence when a lack of trust, transparency, and alignment could bring the company, let alone the relationship, crashing down.

Why mutual due diligence matters

The relationship between investors and founders is one of the most important partnerships in a startup’s lifecycle, because it can have a significant impact. While many founders make the mistake of assuming that money is inherently good, regardless of where it comes from, the reality is that working with the wrong investor can be more costly than not having an investor at all. Although cash will always be crucial to any startup, when a funding injection isn’t backed up by shared values and strategic alignment, it can result in misunderstanding, miscommunication, conflict, and even the premature breakdown of a promising business.

Mutual due diligence can prevent this. If founders vet potential investors just as thoroughly as investors vet them, they can begin the relationship from a place of understanding.

As for angel investors, it’s their responsibility to base decisions on more than just a pitch deck.

Why founders shouldn’t just settle

Founders rarely feel in control of the fundraising process – when you’re cap-in-hand, it’s not easy to set boundaries, and desperation can be dangerous. The right investor can act as a strategic advisor, a sounding board, and someone who can open doors. The wrong one can become a source of tension, slow decision-making, or the worst kind of disruptor, damaging the company’s culture or trajectory. With that in mind, it’s as perfectly reasonable for founders to interview would-be investors as for investors to interview prospective funding recipients.

Founders need an angel investor who understands and supports their long-term mission and is aligned on timelines and expectations for growth. They need investors who offer relevant experience, industry connections, or operational insight, and are willing to be upfront about future involvement and their potential role post-investment. And, if it’s at all possible, they need investors with a good track record of startup investment – free from a related history of micromanagement or conflict.

You’re seeking a mutually beneficial partnership, so apply rigour, ask pointed questions, potentially chat with other portfolio founders, and set expectations early. Capital may solve a short-term problem, but a poor investor relationship can create long-term ones.

What angel investors should be looking for

Experienced investors understand that although big business ideas matter, founders matter more.

If a founder doesn’t have the leadership and vision to guide their company through the obstacle course of business development, and the resilience to roll with the punches, even the best ideas aren’t worth the risk. That’s why strong early-stage bets are placed not just on a product, but on the people behind it.

That said, coachability in founders is also vital, because although no one goes into business knowing everything, they have to be willing to learn. Investors need to work with founders who are willing to accept guidance and feedback, and who have the resilience to deal with setbacks.

Then, there are still practical factors that need to be looked into. Financial clarity is a must – even in the early stages of a business, founders should be able to fully understand their financials, and to demonstrate that understanding. That means being able to easily discuss their burn rate, revenue model, and how they plan to use the funds, as well as forecasting. Clarity of vision can prevent the business from becoming directionless. And it remains vital for investors to ascertain whether there is a scalable market prior to investment, because a compelling product means little if the market for it is too small.

The best startup-investor relationships are built on shared conviction, not just capital. And that comes when both sides bring trust, transparency, and a willingness to grow together. So, whichever side you’re approaching funding from, choose wisely. Your business, or your return, may depend on it.

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