Last month, I had the chance to speak to a room full of entrepreneurs and angel investors at the Bethesda Green Business Incubator about the dos and don’ts of raising money from “angel investors.” Here are a few highlights from my remarks.

Many service-oriented businesses can be started with minimal start-up capital. But for companies selling a product, the money for inventory needs to come from somewhere. When we launched Honest Tea back in 1998, we got our first order for 15,000 bottles from the local Whole Foods region. We had a customer, but we didn’t have the cash on hand to buy the bottles, the tea, or pay the co-packer to make the finished product. So we raised about $500,000 from the only people who couldn’t say no – ourselves, our parents, my sister, and my co-founder Barry’s college friends. (Barry is 8 years older than I am, so his classmates had accumulated more wealth.)

I’m not a lawyer, and you should consult one before raising investment funds, but it’s important to remember that there is a legal definition of an accredited investor, and any stock purchase agreement should take that definition into account.

Here’s a diagram of our investment community after our startup round (circles are all equal and not representative of investment amounts):

Once we got our product on the market and started selling, we needed more cash to expand our sales team and our inventory. So, we started to raise money from people we didn’t know. We were approached by consumers who liked our products and wanted to invest. We also received numerous inquiries from prospective investors in response to media coverage. If there is a story, don’t forget to mention that you are raising money. Other investments were more creative. A PR/Design firm took their retainer in stock for a certain amount of time. I did speak to a few angel investment clubs, but they were not an effective use of my time. 

In 1999, Barry and I raised $1.2 million through angels and other investors. Here’s what our shareholder community looked after this round:

So what are the main benefits of angel investors?

  • Cash. You need cash to grow your business and angel investors have it. It sounds obvious, but don’t take money from angels or investors unless you plan on giving it back.
  • Control. The terms are less demanding.  Angel investors are looking to have less control over your company than venture capitals or institutional investors regarding shareholder rights, governance, and decision making. They are around for the ride. Because Honest Tea raised funds from angels, our cofounder, Barry, and I were able to protect Honest Tea’s mission.
  • Angels can offer advice, experience, and support.
  • They have great networks, can serve as local cheerleaders for your product or service, and can help get you connected.

But there are tradeoffs: 

  • Angel investors take more time. Over the ten years that we raised close to $10 million in angel funding from 100+ investors, I easily had over 500 conversations with potential investors. Our time might have been better used raising that same amount from ten strong institutional prospects.
  • Angels may have less expertise in your industry. We were fortunate to tap into the local real estate network, but they didn’t have any beverage experience. They were a great source of cash, not beverage expertise. As the principals looked to diversify their portfolios, they didn’t have many contacts in the beverage industry.
  • When times get tough, there’s no guarantee that angels will pitch in to keep the lights on.
  • They can get cold feet – personal situations do change, divorces do happen…

Here are the Honest Dos and Don’ts:


  • Clearly define expectations. Be very specific about shareholders rights, expected timeframes, and exit strategies. Know your industry so you set realistic goals. It’s always safer to be conservative and under promise.
  • Communicate frequently with investors. We sent quarterly updates on the good and the bad as well as industry-wide news.
  • Demonstrate your own commitment. Put skin in the game.


  • Never let an angel investor dictate terms. Listen to their feedback but don’t offer special status or authorize special shares. We only issued common stock to all investors for the first ten years.
  • Do not make sudden cash calls. If you know you’re going to need money, work on it ahead of time. No one wants to feel like they’re helping a sinking ship stay afloat.
  • Never get on a plane to meet an angel investorYou need money, but you are not desperate. If you put too much time into raising money from investors, you are probably not focused on the business.
  • Insist on meeting the principals, eventually. You need to know who is writing the check.
  • Don’t expect too much help with the business, aside from cash.
  • Angels can be distracting.  Don’t invest all of your time managing your relationship with angels instead of doing your job.

One of my favorite quotes from one of my favorite Honest Tea angel investors is:

“Lack of money is no obstacle. Lack of an idea is an obstacle.” – Ken Hakuta

It’s a reminder that while a CEO always needs to make sure the enterprise has enough money to keep the lights on, the best way to make sure there’s money is to sell your product or service.

Want to hear more? Check out this highlight video from the event: