What are key issues for companies to keep in mind when obtaining investment from an Angel group?
The main one is simultaneously obvious and under-estimated in both directions: you are likely getting a bunch of small-ish investors at once. This might typically be anywhere from five to twenty-five investors each putting in somewhere between $10,00 and $100,000 (depending on the group.)
The good side is that you now have 5-25 smart, connected people rooting for you. If you handle this correctly and make your expectations clear up front, they can be a *major* asset when it comes to introductions, connections, advice and follow-on funding.
The not-so-good side is that you now have an equal number of people with a legitimate interest in the details of your business, to whom you have a fiduciary responsibility both to safeguard their money and to keep them informed. Usually, this works out well for everyone, but I’ve seen cases where a couple of small investors can aggravate the CEO by constantly calling with questions, intruding with operating advice and generally being a pain in the neck.
The solution, however, is pretty straightforward:
- Make sure you have a good working relationship with your lead angel, who will often be on your board. Establish up front that he or she will be your primary interface with the group.
- Communicate early, often and fully with ALL your investor members. If your term sheet calls for quarterly reports to investors, SEND THEM! And make sure that financial reports are accompanied by a management letter explaining what’s actually happening.
- Use an investor relations platform ([cough] like Gust [cough]) to keep all your investor material, reports and contact info up to date. That’s likely what the group is already using to collaborate with each other.
- Have a regularly scheduled conference call with your angels to keep them in the loop and let them ask questions of you. My gut tells me that quarterly is probably too frequent, but semi-annually may be just about right.
- Make it a point to reach out to them when you need something, including introductions, leads, team members, etc. (this is where most Founders drop the ball!)
- Right from the beginning, make it clear what you expect from the relationship, promising regular communications TO them, in exchange for putting rational limits on communications FROM them. (It’s a “one to many” relationship, so that’s the only way it can work.)
- If you’re an LLC instead of a C-corp, be SURE to get all your investors their K1s in good time to file their taxes…or else you run the risk of being burned in effigy.
- Finally, make sure to keep all your books and records (including your option program, cap table and 409a valuations) accurate and up to date, so that you can respond quickly and professionally when your investors request information to establish valuations for their portfolios.
*original post can be found on Quora @ http://www.quora.com/David-S-Rose/answers *
Written by David S. Rose
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