The Entrepreneur Insiders network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question “What’s the best way for young startup owners to develop relationships with angel investors?” is written by Alexander Goldstein, founder and CEO of Eligo Energy.
As an angel investor and an entrepreneur, I can say firsthand that having smart, motivated investors is critical to the success of your startup. The right investors can open doors, identify and help resolve potential problems, and connect you with other investors. The best investors will actively scrutinize your startup and help you anticipate potential problems, often at the expense of telling you that you are heading in the wrong direction.
There is an old saying that is especially applicable in the startup world: “If you want money, ask for advice, and if you want advice, ask for money.” Entrepreneurs should be out talking to investors before they are ready to jump in for a number of reasons, but, principally, to make sure that their idea is even viable. Through this process, entrepreneurs will establish the viability of their ideas and make connections that will serve them later on down the road of fundraising.
Once you are ready to raise capital, lean on your immediate network first. Your family, friends, acquaintances, and present and past colleagues may decide to become your angel investors or point you in the right direction to establish key relationships with other potential investors. Work your immediate network to learn all you can about prospective angels. Remember that investors are more than just a check—you will be bringing them into the fold and onto your team. For this reason, do your due diligence when considering potential offers. Angel.co is a great resource to help you in this phase.
Applying and being accepted into top-tier incubators, such as YCombinator, TechStars, or 500 Startups is a great way to connect with a wide range of investors and leverage mentorship and guidance. Of course, there are other incubators, but, in my experience, most are not worth the cost of entry. Be wary of pay-for-play opportunities as an early-stage company. There will be plenty of services that offer to make introductions in exchange for a fee, but the benefits rarely materialize from such introductions and may result in negative signaling. Successful, early-stage companies rarely use paid brokers or bankers for the first rounds.
Beyond getting out there and making connections, as an entrepreneur, you need to be comfortable speaking the startup lingo. For example, you should understand the difference between pre-money and post-money valuation. Read as much as you can online and in print. Brad Feld’s Venture Deals is one of the better available resources. Look around to see what else might work for you while you move toward fundraising and growing your startup.