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Angel Investor Participation

Updated on August 24, 2015

One of the most frequent questions entrepreneurs have concerning angel investors concerns the amount of control the investor will want in the business. This can be a matter of contention at times only because entrepreneurs tend to be free spirits with a vision and don’t want anyone interfering with that vision. However, practical considerations dictate that a business owner or business management needing investors is going to have to play by investors’ rules.

The risk of company failure is one of the primary considerations angel investors, equity partner, venture capitalists and others investors consider when deciding how much control to exert over the business needing the money. The higher the risk, the greater the amount of control angel investors will want to have over operations. That only makes sense because it’s their money at risk.

Passive or Active Lenders

Angel investors have several options in terms of the level of control required before lending money. Passive investors will simply lend the money and not ask for any participation in the company on any level. Angel investors also have the option of remaining passive but offering mentoring services upon request. Many angel investors have significant management experience and can provide invaluable assistance is asked.

There are also active investors who insist on having some say in the business in exchange for lending money. Once again, the investors’ role can vary. Some will sit on the board of directors and simply act as a voting member. Another option is for an investor to sit on the board as the head of the board of directors and thus take full responsibility for major business decisions.

In some cases, the angel investors or other types of investors like equity partners or venture capitalists may insist on temporarily assuming a full executive level position. Even some lenders offering business loans may require a representative be fully involved in the company as a manager or executive. This is to insure that the business has access to the expertise needed to succeed and to protect the investment.

Keeping the Business Alive and Well

Sometimes a passive investor will choose to become an active investor if it appears the business is floundering. The angel investors provide funding in many cases where traditional funding would never be approved. That doesn’t mean these investors will just accept a company that appears to be heading towards failure. The angel investors will have to convince the majority stockholders and the business executives to allow them to function on a basis that extends beyond the negotiated agreement.

It really comes down to risk. All investors accept a certain amount of risk. The investors will require regular management and financial reports that are used to measure progress. Whether the investor is passive or active, the ultimate goal is to realize expected returns. When negotiating funding terms, keep in mind that even entrepreneurs should take advantage of expertise and experience lenders may have to offer.

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    • FloraBreenRobison profile image

      FloraBreenRobison 6 years ago

      Somehow, I find the term angel Investor ironic when the lender insists on having a large amount of control in the company. Angel suggests that you are trying to help someone out, not become the boss.