Whether your new business is Facebook or bake-your-own-granola kits, you are about to learn that the startup process is both very real-worldly—and not in the reality show sense—and very other-worldly.

There are demons. There’s a bottom-feeding industry out there making it even tougher for the almost-always-beleaguered startup company to get a sound strategic plan developed, get startup financing or even execute a launch strategy once the previous two things are done.

This is the “startup consulting/financing” industry. These are the accountants, lawyers, venture capital people and others who offer comprehensive consulting and even some executional services specifically for startups. While they are careful not to promise in detail how successful they will be raising investment capital (or when), they are very precise and prompt in charging consulting fees—sometimes even in advance of any work being done.

They pray on the entrepreneur’s desperation for funds by making the prospect of raising capital sound easy. Since many entrepreneurs have never done this before, the pitch makes perfect sense. The specialist consultants also play on the fact that startup companies rarely have all the functional management expertise they need before they are funded. Doesn’t it make sense to buy that expertise, as needed, from a one-stop resource? Well, yes, it does.

So the startup loads up with consulting fees. Then the initial financing is delayed from its best-case-scenario timing, often for reasons beyond the control of the specialist consultants. And in the worst-case-scenario, the cash-strapped startup is drained of the meagre funds it started with and the specialist consultant moves on.

What every startup business really needs is an angel investor. These are often family and friends. Sometimes they can be unknown to the entrepreneur, but with special interest or experience in the startup business category. They can be individuals, small groups or even organised and accredited [1] networks.

Angel investors offer better terms than other sources of capital because they are usually investing in the person rather than the viability of the business, or they have a better understanding of the risks. They are focused on helping the business succeed, rather than reaping a huge quick profit from their investment. This is what makes the angel investor the exact opposite of the venture capitalist.

Then there’s the Seraphim [2] investor. This is the angel investor who can and will actually help the company succeed through active participation—most effectively in the sales function. It doesn’t get any better than this.

Based on my experience, here’s what a startup business needs to know:

  • No one can start a business, no matter how fantastic the underlying idea or the founder is, with no money
  • No lending institution will provide debt financing without current sales and/or shareholder’s equity—or a personal guarantee—so all start-up financing starts with equity financing
  • Find your angel investor early. If you wait too late in the business development process, you will become more susceptible to the demons of startup.

Angel investors are generally looking for, in order:

  1. Quality (and sometimes quantity) of the key people—things will certainly go wrong and management needs to be able to work through adversity
  2. Quality of the strategic plan, including timing
  3. Uniqueness and relevance of the underlying idea or technology

Most entrepreneurs would naturally reverse points 1 and 3 above, thinking of the customer or end user.

Be aware of the demons but focus on the angels. They’re brilliant, they’re beautiful and they work for you. [3]

Notes and references:
  1. This refers to accredited investors who are part of an angel investor group or network. Their investments can be matched by government funds by up to 50%.
  2. To my surprise, there’s a hierarchy of angels, with the Seraphim being at the pinnacle (as in closest to God). Let’s skip over the idea that Satan was a top-of-the class Seraphim before his fall from grace. And yes, I had to look this up.
  3. Inspired completely by Charlie of the TV series “Charlie’s Angels”, Spelling-Goldberg Productions, 1978-81