Angel investors can help with your startup. They are a critical part of any entrepreneur’s journey, but they’re not easy to get in front of! This post will walk you through thirteen things that startups must know and prepare before meeting angel investors.
Understand the Angel Investor’s Role
People who invest in tiny enterprises are known as angel investors. Many angel investors provide their skills as well as cash to help a firm grow or expand. This can provide a founder a competitive advantage over a cash-only investor. Every angel investor is distinct, but you may get a sense of the entire process by looking at the operations of some of the most powerful angels.
Mentioned below is a list of things you must know and prepare before meeting an angel investor.
Create a Delaware C Corporation
If you don’t already have a Delaware C Corporation, create one before meeting an Angel Investor. This will help give your company credibility and increase the likelihood of getting investment. Delaware C Corporations are the preferred company type for investors because they provide liability protection, asset protection, and low tax rates.
Examine the Securities and Exchange Commission’s (SEC) Requirements
Examining the Securities and Exchange Commission’s (SEC) requirements for an angel investor is essential. Many companies offer to help startups raise money by acting as a broker between company founders and investors but can get away with not registering the offering as an investment.
Keep your intellectual property safe
Ensure that you have all the necessary intellectual property documents in place, including patents and trademarks. This includes non-disclosure agreements for employees or third parties with access to sensitive information about your business’ technology. Angel investors want to make sure their investment will be protected from future claims from third parties.
Make a plan to raise money
It’s essential to draft a plan for how you’re going to raise money. Knowing all the details like who is involved, what resources are needed, and when will help you feel more comfortable during conversations with investors. Having this information also puts them at ease because it shows that you’ve put thought into this process before they asked—they won’t have to convince you that funding is necessary.
Know Your Company’s Stage
The first thing you have to do is know your company’s stage so that the investor can decide if their investment strategy matches with what you are doing. The higher the risk, the more likely an angel investor will be interested in investing in a startup.
Prepare Your Presentation
Angel Investors are allowing you to present your startup and its business idea. This is a big deal for entrepreneurs, as they will be judged based on their ability to convince investors that this new company can provide returns.
Recognize the Potential Terms
Angel investors are usually looking for investment opportunities that will repay them within five years, if not sooner. They also seek to work with management teams who can scale their products and services quickly.
Decide on a valuation and cap table for your business
An important thing you should decide on is a valuation and cap table for your business. If you don’t know what that means, it refers to how much money each share of company stock is worth. You have three main options: pre-money, post-money, or multiple of earnings (MOE) valuation. With pre-money, you’re setting the valuation for your business before raising capital.
Post-money is putting it after receiving money from an investor or investors. The multiple of earnings method sets a cap on how much you can sell each share to an investor based on what percentage of the company they are buying.
Make a Financial Plan
This is essential, and we cannot stress this enough. There will be a lot of numbers involved in making the plan, but that’s okay. You don’t have to completely perfect it before getting started either-you need something on paper to get an idea about what you want your financial goals to look like for next year and beyond.
Plan Your Exit
Startup founders who are planning to take the startup into an acquisition or IPO need to plan how they will get there. This is where you’ll start thinking about your exit strategy and goals of selling the company. The most crucial thing in this step is that you think and be realistic about it.
Be Prepared to Perform Due Diligence
Angel Investors will always conduct due diligence before deciding to invest in your startup. They need information on you, the team, and how much money they are investing in. Be prepared for these questions when meeting with an angel investor so that you can answer them confidently.
Consider Adding to Your Funding
Many startups have a general idea of the amount they need to get their company going. If that figure is in your head, it’s probably not enough for an angel investor. Make sure you know what else you could add before meeting with them.
Hire a Lawyer
Angel investors are looking for companies they believe in, and it is vital to hire a lawyer who understands the process. Many attorneys will work with startups on contingency, which means you won’t have to pay them unless your company gets funding.
The Bottom Line
Angel investors provide a great way to get off the ground for new startups. However, knowing what they want and talking with them is vital since many of these individuals work as consultants on their investments. With the help of this article, you would know about the 13 things that start-ups must know about angel investors before meeting them.