Every group has a procedure flow for incoming funding requests. For angel investors and founders, it is essential to have an understanding of the high-level process as it may affect when you give access to certain information as a founder or when you decide to write that cheque as an investor. In this post, we will cover everything from pitch to cheque and everything in between. The process will vary from group to group, and this is meant to be a high-level overview.
Source Deal Flow: Angel Investing revolves around actively seeking and acquiring ownership in companies to create a portfolio that will stand the test of time. Startups are brought into the funnel through various ways, including cold outreach, group relationships with incubators and accelerators, and referrals from other investors. Entrepreneurs take the stage, presenting their innovative ideas to potential investors. Entrepreneurs skillfully craft compelling pitches that capture attention and ignite the spark of interest.
Initial Pitch Session + Q&A: Angel investment meetings follow a well-structured format. Introductions set the stage, establishing rapport between entrepreneurs and investors. Pitches then take the focus of the event, showcasing a range of concepts in different industries. Engaging in Q&A sessions and follow-up discussions further nurtures the information-gathering process.
Investors meticulously screen startups, employing specific criteria to identify promising ventures in the deal flow process. Factors such as market potential, growth prospects, and the entrepreneur’s expertise inform the screening process, guiding investors toward compelling opportunities.
Due Diligence: This process takes center stage, shedding light on the startup’s inner workings. Investors dive deep into market landscapes, team capabilities, business models, financial projections, and legal considerations. This search for a clear picture of the business provides insights, empowering investors to make informed decisions.
Term Sheets: In the final stage for some groups, term sheet negotiations shape the partnership. A comprehensive agreement is crafted, encompassing equity distribution, investment amounts, board representation, and other vital provisions. This pivotal document solidifies the partnership and sets the course for a shared future.
Legal Documents: In the world of angel investment, dreams find wings, and many possibilities can emerge from this partnership between the investor and the company. Through structured meetings, thoughtful negotiations, and partnership agreements, entrepreneurs and investors collaborate to shape a vibrant ecosystem where innovation thrives.
Closing: When all the documents are in order, the process will conclude with a closing where everything is signed. This final step will involve the legal representatives checking and finalizing all documents involved. There may be additional negotiations at this stage as both the company and investors look to protect their interests in the deal. Deadlines for the deal closing date are agreed upon in advance so that everyone is aware of when all the preparations have to be done by.
Post-Investment Steps: After the investment process has concluded, a new phase begins where the investors provide ongoing support and mentorship to the company. It is expected that the founders will report to the investors regularly and not withhold any information regarding challenges they are facing so that they can be steered towards the best possible strategy for operation. The angels might assign a member of their team to serve on the board of the company, and it is expected that they will do everything they can to leverage their networks in support of making a successful outcome for both parties in this journey.
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