“Capital isn’t scarce; vision is.” Sam Walton
This is the final part of a short series of blogs on raising funds from Angel investors. We’ve looked at the Angel investor market in the UK, how to connect with them and some key points for a winning pitch. However, the process can only be regarded as successful once funds are in the company bank account. In this final blog we look at:
Closing the Angel round
Successfully completing an investment round, with multiple business Angels,
can be the equivalent of herding cats! Here are 12 steps to make the process less protracted and painful.
12 steps to success
1. Establish a group of angels who have indicated an interest in investing in the opportunity to form the syndicate for the round.
2. Ensure that you are in direct contact with all the syndicate members, have validated their ability to invest and know the amount they are prepared to invest.
3. Identify and gain the support of a lead investor for the syndicate. This individual is ideally the angel with most investment experience, who has specific and relevant domain or sector experience, who is sufficiently known to other members of the syndicate such that they gain additional confidence from his/her involvement. The individual is likely to be a significant investor in the venture and may become the investor representative on the board.
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 syndicate validates forecasts initially presented. Establishing an online data room beforehand will streamline this process.
5. In the absence of a term sheet being presented to the entrepreneur by the syndicate, agree a term sheet with the lead investor and present it to the syndicate.
6. The term sheet is a legally binding document, once signed, and should include the following elements:
a. Offer terms, such as:
1. Company, founder and investor details
2. Amount to be invested
3. Pre-money valuation
4. Type of security and structure
b. Conditions, such as:
1. Satisfactory completion of due diligence and references
2. Enterprise Investment Scheme (EIS) qualification
3. Service contracts
c. Terms of the agreement, such as:
1. Board composition & decision making criteria
2. Rights and restrictions for shareholders
3. Representations, undertakings and warranties of the founders
4. Professional fees and costs
5. Exclusivity period and timescales
d. A capitalisation table showing the post-investment ownership structure of the business to include founders, option pool and investors in the current round.
Term sheet templates are readily available online from various sources and can also be provided by the legal adviser of the entrepreneur or angel syndicate.
7. Once the term sheet items are agreed, secure the signatures of the syndicate and the founders to create a binding document.
8. Instruct legal advisers to begin the documentation process, having earlier established and agreed the fees involved. Both parties will need legal representation, but the angel syndicate 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 for Companies House.
9. Maintain communication with the syndicate, through the lead investor, 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.
10. Respond to documentation queries and change requests raised by the investor side promptly. Don’t fight unimportant issues.
11. Ensure the business continues to make progress and, especially, meets any expected milestones. If at all possible provide the syndicate with some good news to reflect progress, increased traction and momentum.
12. Do not under-estimate the difficulty of gaining signatures on documents if multiple investors are involved. Many business Angels travel regularly and can often be difficult to contact.
Completion itself is likely to be something of an anti-climax, with the exception of the knowledge that the funds are now in the company bank account.
Raising funds from business Angels may be difficult, time consuming and even frustrating but for the right founder with the right venture it may be the preferred option. Your chances of success are likely to be enhanced the more you align with the approach and guidelines discussed in this blog series.
And if you do manage to successfully conclude your Angel round, you will have started the really hard work of…….delivery.
Successfully Raising Angel Funding, Parts 1-4 is available as a single document download on Slideshare