A lot of times I hear founders talk about how they went to an angel investor and that angel investor asked them to pay some consulting fees upfront to help them organize their business plan, or maybe achieve or get access to a market. And, I think there’s a big difference between angel investors and consultants. Founders should really keep in mind that investors should be investors, advisers should be advisers, and consultants should be consultants.
If someone wants to make money by giving you money, well that’s an investor and you treat an investor one way. And if someone wants to make money by asking you for cash, well they’re not an investor they’re an employee or a contractor and you should treat that person in a different way.
Sometimes people straddle both lines. There are some people that say, ‘hey, I will write you a check but I want consulting dollars back out’ and I think that founders should really be cautious and think about how they want to leverage that person as a resource and with the limited amount of capital that they have – is that the right way to fund or grow the business that they have?