As you consider the various types of funding for a new businesses or business expansion, one of the important questions that arise concerns control. How much and how often will the angel investors get involved in your business once the funding is approved? The answer depends on a lot of factors including the negotiated terms and the success of the enterprise that is funded.
Many angel investors aren’t interested in having a say in day-to-day operations. They simply want you to accomplish what the business plan said you would accomplish and earn the investment return that is expected. The investors know what progress is being made because you will have to submit financial and performance reports on a pre-established basis. This is true for all types of investors whether they are angel investors, equity partners, venture capitalists or banks giving business loans
Control issues really come down to how secure the angel investors feel about the success of your enterprise. Though it goes without saying that investors approving start up funding or business funding for expansion believe the projects will succeed, they are savvy enough to know there is always a degree of risk. The higher the risks, the more control the angel investors will require.
A solid business plan will be realistic and a profit must be shown at some point even if not the first year or two. The best plans though are not guarantees the initial forecasts will be met. The types of control angel investors may require include the following:
- Passive investing in which investors providing business funding rely on the quarterly, monthly and annual reports and have virtually no contact with the business management or board of directors
- Passive investing in which investors are available for consultation when requested
- Active investing in which angel investors sit on the board of directors and have full voting rights
- Active/passive investing in which the angel investors advise the board of directors as mentors
- Active investing in which the angel investors assume an executive management position like Chief Executive Officer
The Full Gamut of Control
As you can see, angel investor control runs the full gamut from no participation to running the company. Some investors will take control of the majority share of stock to gain full control of the company like equity partners; however, that is not the preference of most angel investors. They are not investing to become business owners, but rather to make money. In addition, if there is more than one angel investor, the group may designate a single representative as the primary contact.
The control issue can be one of the more difficult areas to negotiate at times. Though an entrepreneur needs money, he or she doesn’t want to give up control of their vision or dream. You can take care of that issue by submitting a solid well thought out business plan that is realistic.