Entrepreneur Turned Angel Investor

with Josh Felser

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Differentiating investor styles and bad behavior

Josh Felser

Co-Founder of Spinner, Grouper & Freestyle Capital

Lessons Learned

Entrepreneurs need to spend more time doing due diligence on angels.

You have to decide what investment style makes you excel as an entrepreneur.

Ask investors if they are meeting with competitive companies or other investors.


Lesson:Entrepreneur Turned Angel Investor with Josh Felser

Step #6 Honesty: Differentiating investor styles and bad behavior

Just because you're an angel doesn't mean that you're also a good person. You can't assume that. Angels are human. VCs and angels are all human and as humans, they make mistakes. There are bad humans and there are good humans.

Just because they're someone who's been an entrepreneur and turned angel investors doesn't mean they're good or bad. They're human beings. So, you have to really do the same due diligence on an angel as you would on a VC.

I don't know if the ratio is any worse in like venture versus non-venture. The difference is that in venture, you have a lot of power. So, being a bad human as an investor can have a far-reaching impact. So, I think because of that, all of us need to be more responsible in how we behave. I think that entrepreneurs need to spend even more time doing due diligence on angels.

Well, there's bad behavior and there's style. So, bad behavior for me is mostly around not being honest. When you have an agenda that's different than the entrepreneurs, it's not stating that. It happens all the time. We have different agendas from entrepreneurs sometimes but I let them know that I'm on the opposite side of this and they should get advice from someone else. So, I think violating trust is usually where the bad behavior lives.

Stylistically, there are investors who are very direct and aggressive and in-your-face. I think that's not bad behavior necessary, it's just a style issue. You can be aggressive as an investor, even angry as an investor. That's not necessarily a bad behavior. That's a style issue. You have to decide whether that style is going to work for you or not as an entrepreneur.

So, I do distinguish between the two. Some lump those two together and say, "If you're aggressive and controlling, that's bad behavior." I don't think it's bad behavior. It's a style, it's a stylistic difference.

So many entrepreneurs want a cofounder who is going to be more aggressive, more direct, in-your-face and that balances their own, kind of, softer style. So, I think really try and find the style that matches your style or that helps you excel as an entrepreneur and don't confuse style with bad behavior.

If I stay with that theme of dishonesty as the primary form of bad behavior, when you meet with an investor, you shouldn't have to ask them if they have a competitive company in their portfolio or they're talking to a competitor.

They should be open about it. But many won't. So, you have to ask. You want to work with an investor who is going to own that without you asking, but the reality is that you have to ask.

If an investor is considering working with you and they're out talking to other investors without telling you, that's dishonest. So, it's a sin of omission. They're not lying to you. Maybe you haven't asked them not to talk to other investors. But dishonesty comes from being blatantly dishonest and also just omitting things like competitive companies and collaborating with other investors. I think those things need to be... We're very open about those things. We're open about our differing agendas. I think that goes a long way with our founders.

Here's an example of bad behavior. I think anyone would look at this as bad behavior. It happened recently, so I can share it. One of our companies was in the middle of raising the round and we were kind of negotiating with them to lead it. Things were going well and we were both happy with each other.

Behind the scenes, there was this drama happening that we didn't know anything about. In fact, it was months later that we found out about it. This very powerful angel wanted to invest more in the company than there was available.

When the company was upfront about that, this powerful angel told the company that he would try and dissuade the other investors from investing in the company by telling those investors that the founders weren't worthy of their money.

If I had heard this going on, I would have jumped in and been very aggressive, kind of blocking that angel because that kind of behavior, well, I guess that's an example of bad behavior. But it's also a stylistic thing because when that person…

I would never take money from that person as an investor. But if that person is in your corner, they might do the same thing in a way that benefits you. So, you have to decide if you want that kind of "go to war" mentality that's being exercised in that way.

These entrepreneurs ultimately took money from that person. I haven't explored why. Maybe they decided they wanted that aggressiveness in the company. Maybe they were intimidated by it. So, it may be both.

I think because, and I'll say this again. I think there is more responsibility that accrues to an investor because of the power that we have to behave well. I think that is missed in a lot of this. You think, we're all humans but I think there is more responsibility when you have the kind of influence, intimidation on these entrepreneurs to behave well.

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