3 Types of Angel Investors and How to Pick the Right One (or Two)

"We're looking for angel investment, who should we talk to?"

I get this question a lot (and I mean a lot). As a result, I thought it would be useful to write a post about the three main types of angel investors and how to figure out which one you want.

The other reason I'm writing this post is because way too many young entrepreneurs become obsessed with raising angel and venture capital (VC). When this happens, these folks lose sight of the real reason they became entrepreneurs: to launch and grow their company. It's pretty similar to what happened during the last tech bubble and it's bad news, unless you remember that raising money is not a sport. If you treat it like one, you'll undoubtedly end up on the losing side.

If you really have no option but to raise money, angels can be a good alternative to smaller VC rounds, but you want to make sure you're working with the right investor. How do you do it? Keep reading to find out the three main types of angel investors.

Angel Investor #1: "I like money and need more."
There are too many of these "professional angel investors" out there, and they're the worst. Their only goal is increasing their wealth. This type of investor is actually a person that wanted to be a VC, but couldn't raise enough capital. The reason they are so dangerous is that they have too much vested in the small amount of money they give to your business, which then leads to over-involvement and pressure on you for all the wrong reasons.

Angel Investor #2: "I have so much money, I don't know what to do with it."
Every entrepreneur has met one of these investors: it's the person who has already generated significant wealth and has no real need for more money, and can be a lot less selective in funding ventures. They're probably in the stage in life when they're giving back, and part of that can be angel investments. This type of investor is ok if you're looking for just money and maybe some general advice about the start-up process. But don't expect incredible moral support or stellar advice from this kind of investor on a regular basis--he or she is likely over-extended in that realm due to their involvement in multiple ventures.

Angel Investor #3: "I'm passionate about a specific industry, and have tons of connections in it."
This is the best angel investor, and a selective one, but the kind you should absolutely target. Why? Because this person already has money and isn't looking to get involved in angel investing to generate more wealth as the ultimate goal. Instead, they're hoping to serve as a true angel and really come through for your business by offering both funding and insight. Best of all, he or she has clear passion for the industry you're in, and probably the connections that will indirectly help you succeed. They'll also have something money can't buy: credibility in your industry and the connections to make good things happen.

My simple advice is to look for angels that fall into either #2 or #3. Stay away from #1 no matter how desperate you get.

Before you even begin to consider outside investment, consider how you can launch the company and get to revenue before you have to raise money. Although it seems hard in the short-term, it'll be better for you in the long-run in terms of your knowledge of the process, and building your own equity.