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Angel Investors On Your Board Of Directors. How many is too many?

If you’re a startup founder, there are some really good reasons why too many angel investors can be problematic. Here’s why it may not be the right decision for your company to have multiple angel investors.
May 4, 2021

You might be thinking that having more angels is always better. That’s too bad, because it could carry a lot of hidden dangers with it. Here are some reasons why you should say no to some of them:

Angel investors can create conflicts among the team members and thus hinder performance;

Angel investment puts disproportionate pressure on one or two individuals within your company rather than spreading workload across everyone equally;

Angels may make unreasonable demands for returns on their investments which will force an exit before an IPO occurs if they don’t get what they want in terms of either time frame or funding level from venture capitalists who have committed capital (this isn’t good as this leaves little room for negotiation);

It’s a logistical nightmare for entrepreneurs

Imagine having 30 bosses to report to. Some will be hands-on, and some won’t. Let’s take the example of a new boss that wants all the information about his company in order just because he took over as CEO from another who was there for years before with no problems whatsoever – what do I tell him? He should focus on running his business instead of micromanaging mine!

Communicating with everyone and managing expectations can be especially challenging when you have too many investors who don’t know each other well enough yet.

The dangers of an unsecured company are limitless. Not only does it increase the chances of information leaks, but personal opinions may get out and influence your startup’s reputation as well not to mention 25+ investors can be difficult to control.

It can block future investment from other institutional investors

Convertible debt is the most common way angel deals are done. Even though it’s called “convertible debt,” which really acts more like un-priced equity, its terms can be complicated and sometimes have hidden clauses that may not always benefit entrepreneurs or future investors in the company.

One of the risks for startups is not being able to raise more funds in the future because they have convertible debt with many small angel investors on their books.

Voting rights can be complicated for important decisions

It’s a lot of work to make sure that the decision makers are on board with your vote, and it gets even more difficult when you’re considering who has voting power in different locations. For example, depending where you incorporate your company will determine how many votes somebody needs to take action or have an opinion about something like financing rounds- which could hold up big deals if nobody is able to reach consensus!

Before those convertible notes convert into equity, more angel investors means that you need to convince even more people every time your company needs to make an important financing decision.

So, Is it easy to find investors?

It’s time for your company to start thinking of potential angel backers as an extension of the team. Don’t see a “trophy collection” exercise – instead think about investor recruitment like hiring another member.

The success of your company can depend on the investors you choose.

The input level of commitment they offer may be a deciding factor, so make sure to consider what’s best for both parties before finalizing an agreement with them!