How to Raise Money from Angel Investors and Venture Capitalists
Chapter 9 - Quick Recap of the Steps
by Marshall Brain
Let's review the steps we've discussed in the previous chapters. The steps that a company typically takes to raise money from angel investors or venture capitalists look like this:
- You find a point of entry for the angel group or VC firm. You make sure that the group/firm is interested in investing with a company like yours and your company's stage. You meet someone who can provide you with an introduction so you are not submitting your application as an unknown company.
- You apply, providing things like a business plan, a description of your management team, and a Power Point deck.
- A screening committee looks at your application. Since you were referred in, this is usually a formality. Typically the screening committee is makiing sure that your company is not a Lifestyle company, that your company matches the profile sought by the firm, that you have an exit plan, that the market is large enough, that you have a qualified management team, etc.
- The executive committee or firm schedules a first face to face meeting.
- Typically at this first meeting you will do a presentation using your Power Point deck.
- An angel group will have an open discussion after your presentation and vote yay or nay on moving forward.
- Due Diligence part 1 - the 100 to 200 point questionnaire.
- Due Diligence part 2 with interviews of customers, references, employees, tech, etc.
- Having examined the results of Due Diligence there is a second vote.
- The exec committee produces a term sheet. It will state a valuation for the company, the amount of money the firm plans to invest and any conditions - board seat, observer rights, monitoring, etc.
- If the term sheet is agreed to by both parties, legal documents are drawn up.
- Once the legal documents are signed, money is wired into your company's bank account. The relationship with the investor begins in earnest.
- There may be more funding, series B, C, etc.
- You move your company toward your liquidity event (acquisition or public offering) which provides your exit for investors.
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© Copyright 2011 by Marshall Brain. All rights reserved.