This is the fourth in a series of founder related blogs, all of which could be filed under the heading, Dumbfounded.  I have written previously about startup founders hoarding shares, overvaluing their companies, and filling key roles with non-entrepreneurial hires.  I’ll continue here by describing when founders mistakenly assume that angel investors act like venture capitalists.

Over the years the angel community has become more sophisticated, more venture-like it its requirements and activities.  Tired of investing first, only to see their positions marginalized in later, less risky institutional investment rounds, angels now have investment criteria that mirror those of many venture capitalists.  This change is understandable, but some critical, angel investor distinctions remain; permit me to elaborate on one such difference.  It’s one that many aspiring entrepreneurs ignore at their own peril:  Angels, typically, have other occupations; investing in startups is not their full-time occupation.

Why is this distinction important?  I’ll answer by describing a situation I recently witnessed.  Entrepreneur “Edna,” an energetic, middle-aged tinkerer with no business experience, was preparing to launch her new, category-defining product.  To do so, she needed to raise a substantial amount of money.  More money, certainly, that family and friends could provide.  While cautioned that angels would not invest in a company with her as the CEO, she pitched her opportunity anyway.  Edna’s rationale was that she would step down when, and if, investors so demanded.  Sounds logical, right?  We’ve all heard tales of investors demoting founders and/or bringing in their own managers/teams.

Yet, Edna received no investor interest at all.  None.  The reason was simple.  Angels haven’t the time or the inclination to consider companies with unqualified management teams.  They can choose among a multitude of investment opportunities; if one doesn’t meet minimal established criteria (unique product or service, large market opportunity, defensible IP, proven management team . . .) it’s rejected.  Tinkering with startup teams and cultures is not what angels do.  Were this a market tested, proven concept with $3 million or more in revenues the situation might be different.  Such a company would be a potential venture capital candidate.

Like many before her, Edna assumed that venture capital “rules” applied to her pre-revenue startup.  She was convinced that her product and its market opportunity were so compelling that they would carry the day.  Investors would choose to overlook her lack of business and managerial experience.  Sadly, in a world flooded with new ideas and pitches, it is the rare investor who has the time to evaluate every business plan received.  Executive Summaries that do not pass initial muster are quickly discarded.  Great ideas backed by poor management teams seldom get a second look.

Founders like Edna would be well served to restructure their management teams before seeking investment.  Consider, if the situation was reversed.  Would an honest founder answer, yes, to either of these questions?

If he/she had $1 million to invest in, say, the stock market, would he/she give it to someone with no stock market knowledge or experience?

Or, would that founder give a $1 million to that same stock market novice with the understanding that he/she would, at some later date, hire a to-be-identified-later person (with stock market experience) to invest the money?

I think not.

Peter Dragone - Co-founder of Keurig.