The concept of the “angel investor” — those affluent individuals who step in and provide seed capital for a startups at the very earliest stages of their development — is well known today. These are the first investors, the first advocates and, often, the first connections that startups have to the larger business world.
But an “angel customer”? That’s a new one.
In practice, this angel serves a similar role as a seed stage investor, but on the customer / product side of the company. A startup’s angel customer is their first real client, the customer who they scale up with and the customer who helps drive the business forward.
More than just an income stream, a true angel customer is an advocate for the company in the same way that an angel investor is. They provide product feedback, market insights and help open doors for a young startup, often leading to more new customers.
They are critical to the lifecycle of a new company, and not enough entrepreneurs (or civic leaders) are paying enough attention to the role they play in the economy.
That’s according to Blake Marggraff, the founder and CEO of Epharmix, a digital healthcare startup in St. Louis that’s working on tools to automate the patient outreach process. He’s young — in 2015, he was the youngest person to be named to both the St. Louis 30-under-30 list and the St. Louis Top 35 Innovators list — but he knows what he’s talking about when it comes to seed-stage startups. Epharmix isn’t even the first organization he’s started. While still in college, Marggraff cofounded Betaversity, an education technology company, and is the creator of Betabox Labs.
Here’s what Blake has to say about the concept of the angel customer, the benefits they can bring to local communities and how governments can help support this part of the ecosystem.
Innovation Anarchy: First, what is an angel customer?
Blake Marggraff: An angel customer is an enterprise with revenues of over maybe $100 million a year—a really substantial enterprise within a community or geography—that commits $10,000 to $100,000 a year to buy products from a local startup or small business within their geography. The concept of an angel customer is a formal or semi-formal opt-in initiative. It looks like an angel investor, where the investor gets high-risk, high-reward equity for their investment.
IA: What are the incentives for both parties to establish this kind of partnership?
BM: You as a big company have make-or-break potential [for smaller companies]. That small company will tout your brand, will do everything they can to serve you, and will add a lot of value in the process. And, of course, from the small company’s perspective, the first $1,000 in customers and the next $10,000 a month or frankly even a year is huge.
What does every store need? Customers. That’s a huge obstacle. Everybody talks about like the $1 million milestone in the B2B SaaS world. But there’s a $10,000-to-$100,000-a-year zone that gives you flexibility to expand your product, it gives you real world insight, and it most importantly creates social and financial proof for both the customers and investors.
IA: From the perspective of the small business, what’s the difference between getting an angel customer and getting a regular customer?
BM: Nothing, except that regular customers are really tough to get. The entire point of having an angel customer initiative would be to find customers who are willing to take a risk and make that commitment. So they are just regular customers. One difference might be the incentives surrounding them. Or maybe it’s just their willingness to lean into the community a little bit more quantitatively than just saying that they support local startups.
IA: How does this relationship benefit the angel customer?
BM: The thing that should be made apparent to potential angel customers is the secondary benefits. It’s loyalty and a general perception within the startup community. It’s probably is not the be-all-end-all, but it definitely makes a difference, like when startups fail, in terms of where employees might look to go from those companies
IA: How does this type of business-to-business relationship benefit the community at large?
BM: There are very real financial benefits to the community as a whole, because those dollars flow from a startup right back into the community. Especially in your earliest stages, maybe you have a little check going out to service providers outside of the local area, but most of those dollars flow right into the local community, in order to build that infrastructure of innovation.
IA: Why and how should governments support this type of activity?
BM: The argument in a nutshell is it’s a way to attract both startups and large enterprises to a certain area, because it lowers risks and accelerates both technical innovation and talent.
The government could use its discretion to become lenient on certain entities as far as tax purposes. In theory, there’s at least a break-even, if not a really substantial positive, for the angel customers because it is their prerogative with whom they work. They could all work with one amazing tech company that does some really cool analytics, and blow that company up. Awesome, right? And sure, it doesn’t take away from the competitiveness of the industry. But that should also attract other big companies that are thinking about relocating to a certain area. If they get a tax break from buying from the local, really hard working companies, regardless of whether those companies succeed, the big company wins. Just pragmatically, that’s really compelling.
IA: What sort of oversight should governments implement on angel customer relationships?
BM: I don’t think the government should have any oversight as to where the dollars go. You’re giving a break for the company to work with whichever groups they deem best. But there’s absolutely no guidance for the groups. I would go so far as to say there shouldn’t even be guidance for the industry. And the way to make sure that it’s semi-fair, I think, is to make it so this only applies to startups that are pulling in less than $10 million a year or something like that. But make it binary. Don’t make it complex with some strenuous reporting process. That would be a turnoff becoming involved.
IA: What are the downsides for the angel customer?
BM: The downsides are the time and energy that it takes to work with a young company. That’s why it’s important to not just force big companies to work with specific other companies. Don’t force them to stay in a specific vertical. Just say commit $10,000 to $100,000 a year to buying services from some kind of SaaS company that’s within 30 miles. That’s it.
The risk is really time and opportunity costs. For that reason, I think we need to make it relatively easy for large companies to want to work with small companies.
