“Angels”, a curious label when you reflect on it, are those intrepid individual investors who help the earliest of startups with critical capital. When you subtract friends and family, you’re left with those investors who really help entrepreneurs take off. I’ve spent a lot of time recently talking with some serial angels, those who have made investments in many startups. A couple of interesting patterns emerge on how, more importantly, in who they invest. To the person, they understand that some of their investments will succeed and others won’t.Knowing that reality, the question becomes what causes them to pull the investment trigger, and when do they pull back?

With few exceptions, startups are cash starved.They need the money. When they meet angels, these entrepreneurs parse their thoughts carefully but passionately. At the offset, there is a profound difference between what entrepreneurs want you to think is going on, what they believe is going on, and, in fact, what’s really going on. But angels already know there is an information gap. While many early stage entrepreneurs struggle to admit it, everyone knows the picture is incomplete, lacking in some critical areas, whether it be product, market, team, or competition. Angels understand that what they see is a partial picture.The challenge is deciding whether there is enough “there there” to invest. Most angels move past passion to focus on attributes suggesting an entrepreneur’s ability to execute: track record, ability to motivate others, coachability, self-awareness. Therein lies the rub.

Most early stage entrepreneurs are charismatic, passionate about their product, compelling in their vision of the market. But what’s critical to making a successful investment is appreciating the shared goal of getting the company to grow and becoming attractive to the next round of funding – which in all likelihood will be institutional. The angels I spoke with are unrelentingly focused on future capital. Without more funding, no matter how promising the technology, how great the market opportunity, an angel’s investment becomes worthless. The reality is that it’s very hard to continue to fund a work in process and almost impossible to fund a company where milestones promised with the prior funding round haven’t been met.Angels face deciphering whether the CEO is aware of this reality and has the talent to pull it off.

The challenge is figuring out what’s important to the next money. The answer varies with each company, giving different weight to market, model and stage, and can be driven by beta customers, or channel partners, from coverage in several sectors, to some semblance of a sustainable pricing strategy, to expanding the team. Some entrepreneurs don’t understand what will attract the next stage of capital, or appreciate the criticality of that knowledge. If the end game is the ability to raise more money at a better valuation, then angels have to test an entrepreneur’s ability to focus and execute with that end game in mind. More on what I learned from some intrepid angels on setting that next stage in my next column.

With more than 30 years’ experience in law and business, Newt Fowler, a partner in Womble Bond Dickinson’s business practice, advises many investors, entrepreneurs and technology companies, guiding them through all aspects of business planning, financing transactions, technology commercialization and M&A. Newt can be reached at newt.fowler@wbd-us.com.