     |
Essential Angel Investor Tips for Raising Venture Capital from Angel InvestorsHere's some Angel Investor Tips for raising capital. First you have to have a solid and effective Business Plan. Once you have the attention of some serious angel funding sources, then comes time to start discussing financing structures and terms. You should do this while they are conducting their due diligence. You want to meet with as many investors as you can. This will be an ongoing process for several months, so keep gathering names and contact information. An Angel Investor Guide is one way to help you start locating Angel Investors. Here are some important angel investor tips to keep in mind when talking with investors to obtain funding: 1. Talk with and meet with as many Angel Investors as possible, because you don’t know which one's will show interest and possibly fund your company. This process will be a little less formal than if you were going to a Venture Capital Firm for funding. They will still conduct significant due diligence however. Also, if you are lucky enough to have several Angel Investors interested in funding, you can choose those that offer you the best terms, although usually several invest as a group all on the same terms. Example: You may have 5 angels invest $100,000 each, but all on the same terms. 2. Find out if they have funded any companies that are competitors of yours or if they are currently considering funding a company that could be considered a competitor. Ask them to sign a non-circumvention and non-disclosure agreement. Although it is always hard to know if they honor it, most people do. If you feel they do have too close a connection with your competitors then you might be wise to drop them as a possible funder. In that case do not send them your full Business Plan. See When and Why to Use an Executive Summary Instead of a Business Plan. 3. Try to have a Term Sheet ready to make discussing financing terms easier. State the equity percentage you are willing to give up in your company. Find out if they want board representation and anti-dilution provisions. The questions you ask during the fund raising process will show your thoroughness and attention to detail. Also, how you negotiate with potential investors reveals to them how savvy and knowledgeable your management team is overall. Although you should negotiate aggressively on the terms that you feel are fair, it is easier to negotiate with Angel Investors than it is with Vulture Capital firms, I mean Venture Capital firms. This angel investor tip will hep you save tome and "cut to the chase." 4. Ask for subsequent rounds of financing based upon milestones of gross or net profits. This gives you a built in funding source if your meet certain goals. It's great to have funding lined up for your second round so you don't have to go through this painful exercise again. If they cannot promise subsequent financing then offer them a right of first refusal. They will appreciate you trying to protect their interests in subsequent financing rounds. 5. Time to call in legal counsel. At this stage you have one or more interested investors. You also have a term sheet you are working off of, although it is probably not yet final. Either before or immediately after you start drafting the term sheet obtain competent legal advice. The money you spend on legal counsel to help you with the deal terms and understanding all the implications is money well spent. Having good counsel should save you money and/or equity in your company in the long run. Just make sure counsel knows what "clawbacks" and "super preferreds" are, otherwise they aren't experienced enough and won't be that helpful. They should have enough experience to be able to offer you some of their own angel investor tips. 6. Always ask for a “Clawback”. A clawback allows you to buy back shares from the investor at a minimal price if you achieve a certain milestone. For instance, if you reach $3,000,000 in gross revenues in the second year after funding, then your company may repurchase 10% of the shares from the Angel Investors for $.10 per share. This angel investor tip can help management earn back or "clawback" some of their equity to increase their ownership interest after funding. 7. Can they also be a Strategic Partner or introduce you to potential Strategic Partners? In addition to being a funding source, are they also a strategic partner that may be able to help you with sales through either their own company, another company they have funded or through an overseas contact. Some Angel Investors have great contacts and connections. Look at them as a funding source as well as a networking source. Maybe they can help you with advertising, marketing, manufacturing or internet sales. What I am saying here is you have to be actively engaged in the money raising process. Funders like to see a management team with "fire in their belly". Be persistent and aggressive not only in your search for funding but also when it comes to negotiating financing terms.You can also check out
Angel Investor Tips
for more information to help you out with your search for funding.
|
