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NY Angels' Brian Cohen on How to Get 'Smart' Funding for Your Billion Dollar Idea In his new book, angel investor Brian Cohen talks about the importance of getting smart money for your startup.

By Brian Cohen

In his new book, What Every Angel Investor Wants You To Know (McGraw-Hill Education, 2013), Cohen describes how young entrepreneurs would benefit from what he calls "getting the cash registers out of their eyes." In this edited excerpt, he makes a case against raising any kind of money you can get your hands on. Instead, he suggests focusing on who you're raising that money from as the key to more sustainable growth.

Entrepreneurs looking for seed capital talk about "smart" money vs. "dumb" money. But I think a better comparison is the difference between investor-raising vs. money-raising.

I understand it's tempting for founders to grab whatever funding from whatever source they can. And I realize the limited choices some founders may be given. Money is money, they say, so grab it -- and as much of it -- as you can.

But when entrepreneurs focus on the source of the funding -- or what I've dubbed "Investor Raising" -- a company is more likely to flourish. It's the source of funds who can provide counsel, contacts and other benefits that in total value will dwarf the initial monetary investment.

Here are five ongoing advantages that landing smart investors can deliver to your startup:

1. A guide who's been there. It's not easy to be the founder of a company. Someone has to make the decisions, and that's true even in the most cohesive of teams. Teams don't make decisions. Some individual has to take the responsibility, and that individual is you. Leaders quickly learn that executive responsibility is an inherently isolating task, and it helps to have an investor you can lean on and confide in.

Related: Pitch Perfect: How to Prepare to Speak in Front of Investors

2. Access to the truth. Getting authentic information when you are the top is also a challenge. There is something in human beings that resists being honest with leaders, especially when things are not going well. Maybe it's all those fears of the leader killing the messenger. One CEO told me, "The last day I knew I was funny was the day I was appointed CEO." By choosing an angel who has skin in the game, he will provide honest, up-front advice -- even if you don't want to hear it.

3. Recruiting. Hopefully, the time will come when your startup will need to staff up. Angels can be very helpful in recruiting because we meet hundreds of smart, talented people every day. Startups under-utilize the angels they have raised when it comes to recruiting. If you have a well-connected angel on board, use him or her.

4. Raising additional equity. Let me be blunt. When it comes time for you to raise additional rounds, you want to be confident that your original angel will be there for you not only to participate but to champion you to other investors.

Related: Angels in America: A Look at Angel Investment Growth Across the U.S. (Infographic)

5. Building relationships. If there is one thing angels need to be good at it's helping the startups we invest in build relationships. We do that by being a resource for introductions of all kinds: potential partners, experts such as lawyers and accountants, customers, potential recruits and sources of capital.

Investor-raising is an ongoing process that persists beyond the funding event. Once you have the angel on board, you have this incredible opportunity to harvest their knowledge, experience and network of contacts. I encourage you to start off by making it clear that you are into investor-raising, and you want to take advantage of all that they have to offer.

How has your startup been helped by angel investors? Share your experience in the comment section below.

Brian Cohen is chairman of the New York Angels and was the first investor in Pinterest. He co-founded GlobalComm/TSI which was acquired by a division of the Interpublic Group of Companies in 1997. Since then, he cofounded, a free online newsroom and he developed Good Cause Communications, a PR firm that helps struggling non-profits.

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