Raising funds from business angels may be difficult, time consuming and even frustrating but for the right founder with the right project it may be the preferred option. Your chances of success are likely to reduce the more you stray from the 10 guidelines discussed below.
1. Establish a group of angels who have indicated an interest in investing the opportunity to form an angel group.
2. Ensure that speak with all the angel group members and have guarantees on the amount they want to invest.
3. Nominate one lead angel to lead the group. This individual should have the most investment experience and relevant domain or industry experience. They should be highly regarded by the other group members and able to secure their confidence. The individual is likely to be the lead investor in the venture and may join the Board of Directors.
4. The entrepreneur will need to be ready and able to respond to due diligence information requests. This process may include the provision of various scenarios on revenues and costs as the investors validate forecasts initially presented.
5. The term sheet is a legally binding document and should include the following elements:
Offer terms, such as:
- Company, founder and investor details
- Amount to be invested
- Pre-money valuation
- Type of security and structure
Conditions, such as:
- Satisfactory completion of due diligence and references
- Service contracts
Terms of agreement, such as:
- Board composition and decision making criteria
- Rights and restrictions of shareholders
- Representations, undertakings and warranties of the founders
- Professional fees and costs
- Exclusivity period and timescales
A capitalization table showing the post-investment ownership structure of the business to include founders, option pool and investors in the current round
6. Instruct legal advisers to begin the documentation process, having earlier established and agreed to the fees involved. Both parties will need legal representation, but the angel group should now operate as one with a single legal adviser. The documentation process will include a shareholders agreement, articles of association, disclosures and various board minutes and filings.
7. Maintain communication with the group through the lead investor and throughout the documentation process. Confirm the expected date for funds transfer and completion to ensure that angels will have transferred funds to the legal adviser beforehand and are available for document signature.
8. Respond to documentation queries and change requests raised by the investor side promptly.
9. Ensure the business continues to make progress and, especially, meets any expected milestones. If at all possible, provide the group with some good news to reflect progress, increased traction and momentum.
10. Do not underestimate the difficulty of gaining signatures on documents if multiple investors are involved. Many angels have business schedules and travel frequently.
Want To Learn More?
Download our free Raising Capital from Angel Investors eBook.
This guide will walk you through the process of obtaining seed capital for your startup. This book includes:
- An overview of the angel investor process and who they are
- The milestones angel investors look for when evaluating your business
- Strategies for finding the angels best fit for your startup
- How to nurture the relationship, prepare for the meeting and deliver the pitch
- Rounding out the details and preparing for the future