Startups requiring capital often head down the path of least resistance –called the “Triple Fs”. They resort to taking money from friends, family and fools. Sophisticated angels, as I mentioned in my last column, bring discipline to the investing process. Not only do angels focus on talent, market, product, competitive landscape, they hone in on whether the funds being raised enable the company to get to a stage where it can attract institutional capital at a significantly higher valuation.

While it varies by startup, to understand this potential, angels focus on such factors as market dynamics, business model, and stage of development. But above all, they hone in on an entrepreneur’s ability to execute: what sort of track record of leading an organization exists, does the entrepreneur have the ability to motivate others, is she or he coachable, self-aware, how are past failures narrated?

Friends, family and fools undertake none of this diligence. Rather than have the probity to strengthen the potential of their investment, for friends and family it’s an exercise in near-blind faith; for fools, it’s driven by the entrepreneur’s charisma and storytelling ability. Most angels don’t conflate passion and reason, while both are important, they’re not interchangeable.

The structure of the investment varies dramatically as well. The Fs will write the check and take whatever the entrepreneur offers – usually with two flaws: a high valuation and little control. With rare exception, most “angel” rounds filled with the Triple Fs are at valuations with no basis in reality. Most Triple F rounds also leave the entrepreneur alone; if there is a board it’s advisory and usually meetings are an exercise in affirming the CEO.

Few serious angels will invest into such an environment; they don’t want to go along for the ride, or more accurately, be taken for one. One of the greatest challenges for a startup that is first funded by the Triple Fs is to reset valuation and institute governance. No investor wants to handle claims from diluting the Fs with a more realistic valuation, or to push the entrepreneur to reset board and oversight functions, changing bad habits.

Not every idea should be funded; not every entrepreneur is capable of executing a good idea. Sorting through this dynamic requires both the entrepreneur and the investor to understand the inherent tension. Most Fs are incapable of such discipline. Even when one gets through this initial discussion, the entrepreneur and angel are faced with whether adequate capital is being raised to get to the next stage of the company’s development. Great idea, promising entrepreneur, not enough money = bad investment.

An adequately capitalized company enables founders to get past perennially raising seed capital and execute on what is needed to get to the next set of funding milestones. Too many companies end up with their business model being to raise capital vs. actually executing. This reality requires the lead angel to embrace what his or her role in the financing really is – not to be an enabler, but to ensure the company raises enough capital to advance the model and to mentor the entrepreneur’s execution after the funds come in.

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.