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Angel Investment Process

It is common knowledge that most young entrepreneurs with new and innovative ideas, or a business plan, are in dire need of capital and seed money to start off their company. While there are many institutionalized funding options like venture capitalists and bank loans, these options are not always workable for a new entrepreneur, who may find it increasingly difficult to get credit from the market. Inexperienced youngsters often face this huge challenge of procuring enough capital to put their business plans in action. 

Fortunately, there are the angels, who are a class of wealthy people interested in investing money directly into a business in which they see funding. However, the angel investment process is not that simple. There is a complete process that an entrepreneur has to go through, in order to acquire the right kind of angel funding. Being familiar with the angel investment process can boost the confidence of a young entrepreneur who is venturing into the world of business for the first time. 

The hardest thing to do, when trying to get investors to back up your venture, is to find one. There are several places where investors can be met. Business Incubators, managers of entrepreneurship programs at universities and wealthy entrepreneurs may be able to point them into their direction.  

Once you have been placed in touch with an investor, the next big thing to worry about is the first formal meeting with the investor. With most investors, you get only one chance to make the presentation for your business pitch. If they like it, they will show interest. If not, you may have to continue looking for a benefactor. 

Once the business angel that you have met through anyone, has expressed an interest in your idea, you may have to officially confirm that the investor has the financial strength to back you up. At this stage, there may not be any final terms for the association. However, it is important to know that the investor you are spending time with, at least has the ability to back you up financially and that you can rely on the investor for the finances. This is one of the most vital parts of the investment process.

Once you have met the angel investor, you will have a brief idea about how much finance you can obtain from them. If there are any additional resources that you require, you will have to look for additional financing. Your investor may be able to help you with these arrangements. Once you have arranged for all the money, the key negotiations will come in. 

Presuming that you have already made your pitch to the investor or the group of investors, the discussion of the terms of association becomes the next most important part of the investment process. Offer a copy of the business plan to the investors. Discuss some of the key points on the agenda, such as the investment percentage of the angel and the form in which this investment will be made. What does the angel get for such an investment? 

The exit strategy should also be prepared well in advance. This means that you should be prepared to negotiate the terms of withdrawal of money by the angel. What are the dividends, salaries and the fees which will be paid to you and what are the circumstances in which these will be changed. 

Discuss the growth potential of the business with the investors. Since this is the key element on which the decision of funding is based, it is important to dwell on it sufficiently throughout the investment process. Discuss about the division of responsibilities. If the investor wants to partake in the running of the company, what will be the extent of their authority and responsibility? Discuss the mechanisms for monitoring growth and performance of the company as well as the individuals associated with it. 

The business angel may have some questions to ask of you. These questions can be put up to you at the beginning of the investment process or throughout the term of the investment. Provide them with details of finances and legal framework. Any financial information like annual accounts and budgets, can be prepared with the help of your accountant. The angel investors may themselves use some professional advisors to investigate and audit your business. 

In the investment process, there are certain legalities that the investors may themselves deal with. They can ask you to provide legal warranties to make sure that the information provided by you is true. If later, it is found out that you have indeed provided misleading information, because of which the business failed, you can be asked to give the compensation for the same. You may also be asked to accept liability in certain special circumstances and indemnities are issued against those. This is an important part of the investment process. For these legal terms, it is advised that both the entrepreneur and the investor should seek legal advice on dealing with the issues. 

The solicitor and the accountant should be able to advise you on any further terms of negotiations. These terms should be very clear so that there is no ambiguity in any of the matters. You may also be able to make the investment process so structured that the investment becomes very tax efficient. All the key issues should be taken down and it should be made sure that everything you have negotiated with the angel investors is in writing.