You're seeking funding for your startup. How do you handle an angel investor expecting quick returns?

Explain to them they are probably in the wrong conversation... if an angel is expecting quick returns then investing in startups is probably not for them!

Start by thoroughly understanding the investor's goals and motivations. Ask questions to clarify their expectations for returns, timelines, and involvement. This helps you gauge whether their objectives align with your startup’s growth trajectory and strategic plans. A deep understanding of their goals allows you to tailor your pitch and negotiate terms that are mutually beneficial.

Move on to investors who understand there are no quick returns in investing. Deal with accredited investors who have capital available and can afford to lose the money or are in the deal for 5 years or longer. Private placements offer investors restricted stock with no liquidity available. Deal with investors who understand this and have them sign a PPM.

As a founder, it took a while to learn that most investors are generally not aligned with needs of startups. So, this is less than a five minute decision: "Thank you for your interest in my startup. However, you should understand that your desire for quick returns is directly opposed to the healthy needs of all startups, not just mine. If you are able to accept that returns will be several years away, and might not happen at all, we can continue this conversation but if you want a fast return or no-brainer 10X, you are not an Angel investor. I really suggest you find a different way to make that kind of money and don't waste the time of people focused on building something new and different." Then, be ready to stand up and walk away.

As a founder, it's important to be upfront and honest with investors about your startup's financial needs and growth trajectory. If your business model requires a longer runway to achieve profitability, it's crucial to communicate this clearly and manage expectations upfront. Be transparent about your burn rate and how you plan to use the investment to reach key milestones. By being upfront and honest about your financial needs, you can attract investors who align with your company's long-term vision and avoid conflicts down the road.

Clearly communicate the realistic timeline and potential returns for your startup. Explain the stages of growth, projected milestones, and potential risks involved. Setting clear and realistic expectations upfront can prevent misunderstandings and build trust. Use data and market analysis to support your projections, demonstrating that you have a well-thought-out plan for achieving profitability.

Expectation setting is critical - even to seasoned investors. Setting the cadence for how often they will hear from you is a good start - monthly? quarterly? yearly? The reverse is also true; how often will you hear from them? Are they going to be in your inbox with product ideas and comments, or are they going to be passive. Having a clear understanding of mutual communication is a great start. Many conflicts are around money, so aligning pragmatically around outcomes can help, and the following questions have been useful to me: Are you prepared to lose all of this investment? Are you investing more than you can afford to lose? What do you want to get out of this investment? What does success look like for us if my company fails?

Maintain open and honest communication throughout the investment process. Provide regular updates on your startup's progress, including both successes and challenges. Transparency builds credibility and reassures investors that you are managing their investment responsibly. Address concerns promptly and provide detailed explanations for any deviations from the expected growth path, showing that you are proactive and trustworthy in managing the business.

During your initial pitch, be transparent about the typical timelines for your industry. Explain that startups, especially in your sector, often take time to build a user base, establish brand recognition, and ultimately turn a profit.

How often you communicate early sets the cadence later. If you are doing monthly updates packed with information, be prepared to keep that up indefinitely. There are mixed findings about founders who post consistent updates vs. those who do not. I am a huge fan of monthly updates because it serves multiple audiences with one artifact; Investors, Team, BOD, and self. Its a great forcing function to close out each month, and does my favorite thing; says what you are going to do, then shows if you did what you said.

Not such a great job LI AI! Ill answer for others who may be searching; Alignment from the start for investors of any kind is critical. You should know where they are in the lifecycle of their investment vehicle - last check of the fund? First check? Something else? You should also narrow the search as much as possible. Long lists of VCs and angels that you bombard with emails and follow ups is not a great strategy.

Terms are usually set by the start up or set by the investor. I think this doesn't apply to Angels because they're usually investing alongside institutional VC's who have set the terms if this is not the case and you have an angel that is investing in the company with owner terms, I would beware this is a huge red flag the investment of time and money at the earliest stages of belief. Capital should commensurate with the ownership they have today and the rights they have tomorrow.

Keep your investor updated on your progress, challenges, and milestones to build trust and keep them involved. Seek their advice on business decisions and use their expertise. Include them in important events like product launches or strategy meetings to deepen their understanding and commitment. publicly acknowledge their contributions to strengthen your partnership.