Early stage investors represent more than just a source of capital for budding entrepreneurs.  An early stage angel investment is presumed to represent validation of the entrepreneur’s vision.  The investment is a vote of confidence.  Based on such presumptions, entrepreneurs frequently seek mentorship from the investor as a component of the deal. And many early stage angel investors have a similar emotional stake in the deal. They may see their investment as an opportunity to keep their business muscles in shape.  They may be bored and expect the business to keep them entertained.  In short, for both parties, its about more than just the money.

Founder CEO’s are sometimes stereotyped as hard-headed and egotistical or nerdy and ill-informed about real world business dynamics. In truth, however, the psychological conditions at work with early stage founders is often defined more by fear and uncertainty – making founders vulnerable and easily intimidated, and reluctant to question or challenge bad advice or misguided influence. It’s critical that early stage investors understand this sensitive psychological state of affairs and manage their interactions and influence with the founder and the company with appropriate care.

By nature, the early stage start-ups are working with unproven products or services and uncertain market validation. At this stage of the business lifecycle its easy to be distracted or diverted in unproductive directions.  Early stage investors should be expected to support and encourage the founder’s vision.  If they question the founder’s ability or the direction of the company’s business plan they shouldn’t be investing.  Just as in marriage, parties shouldn’t tie the knot based on a belief that they’re going to change the other party after the fact.

Equally, founders should be particularly alert to the nature of interactions with the early stage investors. If an interested investor has more interest in what you’re not doing than in what you are doing, then tread with care. Similarly, if an investor takes a never-ending interest in the details of everything about the business – that’s not necessarily a compliment.  Such distractions can be costly in terms of both time and focus.

Worst of all, an early stage investor who routinely challenges or denigrates every move the company makes can quickly suck the wind from the sails   Founders forced to defend their plans and actions at every turn are not only distracted from productive activities, they may find their confidence undermined and their vision distorted.  And finally, succumbing to the demands and advice of an ill-informed investor may risk tanking an otherwise promising new venture.

It may seem sophomoric to think about investment  deals like courtship and marriage but the analogy is absolutely valid.  Preliminary deals are frequently colored by a lustful desire to get the deal done that can blind entrepreneur’s to danger signs lurking in the background.  And a toxic investment deal can be every bit as painful and costly as a toxic marriage.  Therefore, taking the time to do an objective personality trait assessment of potential early stage angel investors is critical.