The barriers to entry for startup investment have been significantly lowered over the past decade. Angel investors have become big players in an industry that used to be dominated by large venture capital firms. These angel groups, also known as "micro VCs" are perhaps the most active players in seed rounds, often investing small amounts in multiple startups at once. What do you need to keep in mind when dealing with these types of investors?
First of all, it is important to have a discussion with your potential investor about what they bring to the table other than money. True, it can be very difficult to get your startup off the ground without seed capital that enables you to go out and test your concept. However, simply accepting capital by itself is often the same as settling for less. The right investors will want to help your idea succeed by bringing existing relationships to the table, rather than just writing a check.
An investor who can plug you into a network of other successful entrepreneurs is far more valuable than one who doesn't seek that level of involvement. Some investors will give you seed capital and treat it as an option on your startup; they want to reserve a seat at future rounds and that's about it. These are the types of investors who typically deploy a small amount of capital to dozens or hundreds of startups at once. To them, investing is more of a roulette game.
Therefore, you should always be on the lookout for those investors who truly believe in your concept and want to contribute value that goes beyond dollars and cents. These are the types of investors who will take a more active mentor role in your firm and put in some sweat equity to help your idea succeed. Whether by consulting on projects, recruiting key talent, or helping raise more capital down the road, these investors will help your startup achieve long term success.