At a recent overview for entrepreneurs on angel investors, it was emphasized that there are “smart angels” and “dumb angels”. After listening to the angel groups talk about it, they seemed to classify angel groups as “smart angels” and individuals such as friends or colleagues as “dumb angels”. They claimed that the smart angels brought more than money and could really help your business.
If you are an entrepreneur, watch your back! I have raised angel money for 5 or 6 ventures over the past 20 years, and the money has come from both the “smart angels” and the “dumb angels”. Hindsight being 20/20, the smart angels really are not so smart, and the dumb angels are not so dumb. Sweeping generalizations such as this are unfounded. What the angel group leaders are really trying to tell you is that they deserve a better valuation than the dumb angels. They won’t say those words, but that is the reason they think they are smart.
The truth is, these groups most often do not add real value and they certainly don’t deserve a better valuation than your friends, family, colleagues, and local business people. They claim to be old and wise and have big roladexes. There are plenty of unemployed consultants out there with business smarts and big roladexes - you can get business advice easily and inexpensively and it is not worth diluting your company for it. The reality of old wise might be crusty old men who are retired and give you the willies.
Angel groups do not move fast and they do not do many deals. They are social dinner clubs and committees with the herd mentality. I’d rather raise money from “dumb angels” any day of the week? Why? It goes faster, valuations are more fair, it is based on personal relationships, generally more pleasant, and you avoid the group effect. Less time raising money is more time selling. Less dilution and more revenue. When you here someone claim they represent “smart money”, watch your back!!!
