During our angel investor blog series, we have been giving you the lowdown on angel investors: how to find them, what they are looking for in your startup, how to make the most of your relationship with an angel investor and when the relationship goes south. We hope this will help you to determine if seeking angel investment for your startup is the best way to go.
This week we cover the timeline for angel investment – from pitch to cash. and how the path is sometimes slightly longer than you think.
So you’ve got your company, your incredible team, and a killer pitch that covers everything from the problem your company is trying to solve and in-depth market analysis; to the amount of money you need and a potential exit strategy. And you’ve delivered your dream presentation to a potential angel investor who seems like an excellent match for your company. What now?
If the meeting was positive, there may be a follow up meeting, and after that you won’t get the money in your bank overnight – there are a number of potentially time-consuming steps that need to be taken before you are fully signed up and invested in.
Your angel investor will conduct due diligence
Or, should conduct due diligence. Although this takes time, it shows the angel investor is committed to the investment and is taking your success (and theirs) seriously. Due diligence is an angel investor’s opportunity to review what you presented in your pitch: looking at your team, reviewing your industry and company competition. As well as company financials to check you have a handle on your business and investments, your plans for further funding including the timeline for this.
You will also need to provide access to your company’s legal documents to check you’re running your company in a way they are happy with. The time this takes depends on an angel investor’s workload and the timeliness you can provide documentation but can take anything up to a few months.
Agreeing your term sheet with an angel investor
The term sheet is your summary of investment terms and conditions and is shared with each angel investor when they’re happy to proceed with the investment in your company. It covers everything from the valuation of your company to share and liquidation options; vesting times to reporting requirements and salaries.
There are simple templates that can be used to make the terms easy to understand and speed the process up, but go into these negotiations certain of what you’re willing to flex on, and have a lawyer lined up so the process can be finalised as swiftly as possible.
The more back and forths there are the longer the process will take but this can take around two weeks if you have these items in place. The Term Sheet, though not a legally binding document, needs to be signed by all angel investors before moving to the next step.
Draft, share and co-sign investment documents
Before putting these documents together, ensure your lawyer and accountant have confirmed everything they need from your angel investor so you can ask all in one go – this will save time and start your relationship off on a positive note. You can start to draft the investor documents while angel investors are reviewing the term sheet.
Investor documents include the Shareholders Agreement, Warranties and Articles of Association. Once you have received the signed copy, and the wired money from each angel investor, you can send over your countersigned copy. Depending on how long each angel investor takes to get back to you, how many angel investors you have investing and the efficiency of lawyers and your team will affect the speed of which this can take.
Once all the documents have been signed, the money will be deposited into your account and you’ve completed your funding – hooray! And now for the hard part, putting your planning into practice and working to develop your company.
Although the process is methodical, there are a number of steps which can cause delays and barriers to cross so don’t expect investment to happen overnight. Factor in a lot longer than you expect to bag yourself an angel investor and have the money in the bank – if you plan for up to 12 months to sign on the dotted line but prepare as best you can, this will enable you to continue to run your business and seek out angel investors at the right time.