Wednesday, January 9, 2013

When Angel Investors Say NO

- When Angel Investors say NO!  -

 The best source of funding for startups and early-stages businesses are angel investors. As most startups are high-risk, the investor spends a great deal of time contemplating and researching the venture. If you want to increase your chances of getting funded on PitchStreet, you must know the 6 rules that help investors when rejecting an investment opportunity. Here are the six:

Rule no. 1- Trust intuition

 The number one rule an investor will abide by when deciding on a particular investment is their intuition. If they have any doubt at all about your investment, they will simple decline your offer. Of course, the most influential factors when deciding are the entrepeneur's presentation, business plan, market strategies, and due diligence findings.  But you can never switch an investor's first feelings on an investment.

Rule no. 2- Avoid underfunding
 In investor's eyes, an underfunded company is worse than providing no funding at all. When an entrepreneur pitches an investor with an exceptional "small" amount of capital needed, the investor will understand that these "underfunded" companies usually generate very little or even no return. Once a company is underfunded, they don't like to write another check, and new investors will stay away from companies seeking extra funding after their initial amount has been made.
Rule no. 3- Always underestimate an entrepreneur’s credibility

 Anyone can talk, but not everyone can deliver. Entrepreneurs will go out of their way to assure their investors that their company will be successful. But truth be told, most start-ups fail which is not what investor are expecting when putting their capital into a business. To ensure that your investor stays happy, you will need to succeed in your company's short and long term goals throughout the whole investment span. In addition, you must have a strong management team, all knowledgeable about the company's goals. Angels will almost always underestimate an entrepreneur's credibility until they have proven them otherwise.

Rule no. 4- Angel teamwork advantage
Most angel investors are capable of working alone. They have their resources, networks and knowledge. But many do like to work in groups where they can team up together and learn the process faster than when working alone.
Rule no.5- The importance of rule-making

Most angel investors have their own rules that they abide by when making an investment, each that compliments their investment preferences. They like to keep to their investment budget each year, their industry focus, and their expected return from each investment. As much as an entrepreneurs pitch might be promising or tempting, they will usually end up sticking to their set rules an perspectives. 
Rule no. 6- Experience

As you know, most angel investors have been through what you, a thriving entrepreneur. Their current success is usually an indicator of their past experience and work ethics. They will have the pertinent sources of how to start, run, and sell a company, as well as experience from learning from their past mistakes. An angel investor will usually select investments that match with their expertise and steer clear from investments that don't have a promising track record. 

It is a given that no two investors are alike. They have their own investment rules, preferences, and experience to back them up. But these six rules I have listed above, almost all angels use to protect their money and avoid investment mistakes. Make sure you have these covered to ensure you fund your company on PitchStreet.

Sunday, December 9, 2012

- Learn the Investor Lingo -

If you want an investor for your startup, you're going to want to learn their lingo. Here I have listed a few terms that is important to know, expecially when you're looking for investors on PitchStreet. 

Accredited investor- According to the Securities and Exchange Commission, Rule 501 of Regulation D, an accredited investor can be a bank, insurance company, charitable establishment, or person who has an individual or joint net worth that exceeds $1 million at the time in which an investment has been made. Individuals who are considered to be accredited investors should have a personal income of at least $200K in each of the two most recent years of investment or have a combined account with a spouse in excess of $300K in each of those years. They should also have the same expected income level in the current year. An accredited investor can also be an employee benefit plan or a trust that has assets exceeding $5 million.

Acquisition-  This is a corporate action whereby a company buys or "acquires" most, if not all, of another company to obtain control. This can also be called a "takeover" since a larger corporporation takes control by buying all of the assets or shares of a smaller company. They can be friendly, when there is an agreement between the two firms, or hostile, when there is not an agreement and the acquiring company needs to activly purchase larger stakes to have more control of the company.

Angel financing- This term refers to the amount of capital that independent, wealthy angel investors are able to “raise” or provide for a particular business investment. Angel investors who provide such financing are often not family members or friends of the business’ founders.

Angel investors- Investors that provide financial backing to startups and entrepreneurs. They are usually investing in the person, rather than the company. Their focus is to help the business succeed, rather than a large financial gain. Quite the opposite of Venture Capitalists. 

Assets- All financial resources that a corporation owns. Current assets can be any form of currency, including traded inventory, investments, and checks. Fixed assets (capital assets) consist of material goods and equipment of a company, such as the land by which the company sits on, the company building, and technological machinery. Intangible assets mainly comprise of intellectual property protection, copyrights, patents, etc.

Business plan- This is a legal document that includes a description of the company, its services and products, and how it plans to succeed its goals. Sometimes one is written for an established business that plans on moving into a new direction.

Capital (financial vs. real) - Financial capital is a term that can refer to the money exchanged between entrepreneurs and investors during a business deal. Entrepreneurs need to raise capital for their startups while investors can provide them with the needed capital (or funding). Financial capital usually comes with interest, and new business owners can use their financial capital in purchasing real capital (or machinery or equipment) for their new business.

Closing- This is the transaction that occurs after entrepreneurs and investors legally exchange all required legal documentation and capital that is needed in their business deal. When an investor “closes in on a deal,” they have already negotiated with the entrepreneur the details encompassing corporate ownership and monetary obligation.

Collateral- This word is used in the financial transaction between the lender and borrower. Often times, when entrepreneurs seek capital from a financial institution, they use their assets (personal belongings and material goods) as a “collateral” or security for their loan. Should the borrower default on payments, the lending institution has the legal authority confiscate those assets.

Common stock- This term represents a constituent in corporate ownership. People who own shares of common stock (common stockholders) often have voting rights in their company’s decision-making matters and executive board of elections. Through company dividends and capital appreciation of corporate assets, common stockholders can also share in their company’s financial success.

Convertible note (convertible debt or bond)- This term refers to a type of legal exchangeable security issued by many corporations. These notes or bonds can be given to investors in exchange for reduced interest rates. Investors, on the other hand, can choose to convert this bond into common preferred stock for a reduced amount of equity.

Corporation- This word can be used synonymously with “company,” “enterprise,” or “business establishment.”

Debenture (promissory note)- This designation is a legal document detailing the terms of repayment and interest that a borrower is responsible for. It also details the principal amount owed and the maturity date. For example, financial institutions can approve qualified applicants for loans. They send out debenture or promissory statements to borrowers as a reminder of their legal contract.

Debt- This is an amount of money that a borrower owes to an individual, investor, or lending institution. In the finance world, the word “debt” is often associated with interest payments.

Depreciation- A decrease in an asset's value, caused by unfavorable market conditions. Currency and real estate are two examples of asset's that can lose value.

Due diligence- This is the process whereby individuals or groups of people conduct independent investigations regarding a particular matter. In the business world, investors conduct timely due diligence when inquiring about prospective investment endeavors. This may entail a background search of the company’s founders, review of the entrepreneur’s credit scores, and routine follow-up with references and associates, etc. New business owners, on the other hand, are encouraged to also conduct due diligence when finding a potential investor. Through due diligence, both the investor and entrepreneur has the opportunity to diligently analyze and assess each other for the potential of an investment opportunity and partnership.

Early-stage company- This term generally refers to a young enterprise that is three years old or younger. During this phase, a company is still in its novel stages of development. They could be in the process of experimenting with new products or services that they intend to market in the near future and/or may have viable products that are already available to the public.

Elevator pitch- This term refers to an entrepreneur’s brief verbal summary of their business proposal. The name “elevator pitch” was designated because the entrepreneur’s oral presentation is often the duration of a quick elevator ride. During an elevator pitch, the entrepreneur concisely outlines their business proposal, marketing strategy, and competitive tactic to potential investors. Prospective business owners are strongly encouraged to polish this pitch, since it can mean the difference between raising desired capital and completely leaving their business ideas behind.

Equity- This designation is given to a stockholder’s ownership in a company. The amount of ownership is obtained when an individual or corporation purchases one or more shares of stock (equity shares). The more equity purchased, the greater the ownership.

Executive summary- This outline is a very important component of a company’s business plan. It concisely summarizes the proposed business idea(s) and the fundamental objectives of the company. Upon review, the investor(s) should have a precise understanding of the prospective company’s mission. The executive summary is the most informative part of a business plan for the investor(s) and plays an influential role in determining if the company is viable enough for investment.

Exit strategy- This is a company’s negotiated approach whereby investors are given an event or time within the development of their company to receive their return on investment (ROI). This can be achieved through a liquidity event, where their equity is converted into cash.

Expansion stage company- This term generally refers to a company that is three years old or more. During this period of development, a company may already have been successful commercializing many of their products and services but may not generate desired profit. An enterprise that is in its expansion stage may resort to seeking additional sources of capital to minimize the risk of failure. Many venture capitalists invest during this stage of a company’s development.

Follow-on investing (follow-up investing)- This word refers to the event whereby investors reinvest in a company sometime during its development. Often times, follow-on investments occur when a company is not performing successfully as planned. Angel capitalists tend to avoid follow-on investments within the same company because of the high risk of additional monetary loss.

Funding- This term is used synonymously with the words “financing” and “capital.” It refers to the amount of money that is needed for a business endeavor. For example, a new business owner may seek a certain amount of funding for their startup company. This “raised” capital can be used to launch their endeavor as well as to sustain their company until monetary profit can be generated.


Initial public offering (IPO)-This is a private corporation’s first-time sale or allocation of a stock that is made available to the public. IPOs can be distributed to both young and established companies who seek to expand or warrant public trading.

Later-stage company- This is a company that is considered to be in its mature stages of development. Unlike early and expansion-stage companies, later-stage companies already have successful commercialized products and services that are publically available as well as a significant generated cash flow. Many venture capitalists tend to invest in mature companies since they are less risky, are already established, have proven to be a financial success.

Leveraged buyout (LBO)- This is a type of aggressive business practice whereby investors or a larger corporation utilizes borrowed funds (junk bonds, traditional bank loans, etc.) or debt to finance its acquisition. The high debt-to-equity ratio enables the investors to “buyout” a smaller company with very little cash. Leveraged buy-outs can be either friendly or hostile, depending on the negotiations made.

Liquidation- This is an event that represents the complete or partial closing of a company. In a liquidation event, a company’s assets and material goods (securities) are converted into cash and/or distributed for sale to pay off existing corporate debt.

Liquidity event- This occasion represents the common exit strategy of most entrepreneurs and investors. When a corporation is purchased (through a merger or acquisition) or when an IPO is made, equity is converted to cash.

Market- Based on supply and demand, this term refers to the societal arrangement whereby consumers purchase goods and services from businesses and individual sellers in exchange for currency. In economic relevance, the “market” can be divided into different industries, such as biotechnology, food, etc. The exchange between the consumer and seller contribute to a society’s market economy which greatly depends on these transactions for economic viability.

Merger- This is a type of corporate approach whereby one company combines or “merges” with another to increase their overall operations and profitability. An example of this type of corporate strategy occurred in 2000 when America Online, Inc. merged with Time Warner to create AOL Time Warner.

Net income- This is the adjusted calculation of money that a company generates after deducting the necessary expenses from the total profit made. Essential costs, such as taxes and interest, are added together and then subtracted from the total revenue.


Portfolio company- This refers to the company(ies) that an investor has invested in.

Preferred stock- This is a type of corporate share where the holders can exercise more rights, preferences, and privileges than those with common stocks. It is often issued by private corporations or enterprises that have not gone public yet. Both angel investors and venture capitalists prefer to invest with preferred stock because of the superior rights and protective provisions associated with these shares.

Promissory note- This is a written, and dated document, signed by two parties containing an unconditional promise by the maker to pay a sum of money to the payee on demand or at a specified future date. The maker of the note pays the payee personally, rather than ordering a their party to do so.

Public company- Under SEC rules, a company that decides to go “public” offers their securities (stock, bonds, liabilities) to be sold in a registered public offering. Through the sale of such assets, a corporation can raise capital for their company, employees, or executive staff. These public offerings are often traded on a stock exchange.


Return on investment (ROI)-This term is also referred to as the rate on return (ROR) or rate of profit. It is the amount of money that is gained in a past or existing investment.

Risk- This word refers to the probability of loss on an investment. For example, venture capitalists tend to invest in later-staged companies because of its stability and established generated cash flow. Their investment is considered to be “less risky” than that of angel investors, who enjoy investing in early- stage enterprises with no proven establishment of success.

Seed money/seed capital- This is the initial set of capital for newly-formed or start-up companies. Angel investors are usually the primary source of seed capital for new businesses.

Seed stage/start-up stage- This is the initial phase of a company’s development whereby a prospective business is currently developing new products and services which have not been fully tested and introduced to the public. This company phase usually lasts an average of 18 -24 months before entering into its early stage of development.

Venture Capitalist- This is a a group of high-net worth investors who invest in later stage companies. Venture capitalists pool money from different sources for their investments.

Venture capital financing- This type of capital is obtained when a venture capitalist firm invests in a company. Based on the amount needed, venture capital financing can be anywhere from $500,000 to $5 million, must be in its later stages of development, and show excellent financial potential.

Saturday, December 8, 2012

-  Types  of Angel Investors -

You will find angel investors with differing personalities and motives on our network on PithStreet. Despite this adversity, many angel investors fall into three main categories:

ROI angels- These investors like high-risk investments, looking for a a nice financial reward at the end. They look to see what other investors are getting in your company, and use this as a big part of analyzing your investment. They invest frequently in many companies with the purpose to add on to their portfolio of investments. They don't put too much effort in staying active in their companies. They tend to invest when the market is striving, and stay low when the market is showing poor performance.

Core angels- These investors have lots of business experience due to running and operating their own successful businesses in the past. They understand that businesses has ups and downs, so they tend to stay with their investment companies despite any losses. With a diverstified portfolio, they are great mentors and advisors for a wide range of industries.

High-tech angels- These investors like to invest in the latest trends of modern technology. 

They enjoy risk, and the idea that their investment can bring new technology into the market place. As they usually don't have as much experience as core investors, they will probably not be too active in the company. They might not even enjoy working in a business atmosphere.

Different types of angel investors

Corporate angels- These individuals have experience working in large corporations. Usually these investors have retired, due to downsizing in the corporations they worked out, or a switch over in position. Not only are they seeking a financial reward, but they are also seeking a personal gain, probably a job. It is actually known for corporate angels to invest in a company, and try to put a paid position in the deal as well. They may use their capital i as a way of power in the the invested company. 

Entrepreneurial angels-These individuals are already operating their own business. They use their flow of income from the business to make investments in other startups which helps them increase their net value. They make mid-size investments, usually from $200,000 to $500,000. They will usually invest more money into the company as it progresses. As they are busy with their other businesses, they rarely become actively involved in the company.

Enthusiast angels- These investors are older businessmen with a high net value. They invest in companies for more of a hobby, usually small amounts between $10,000 to a $100,000. These investors do not plan to take an active role in management.

Micromanagement angels: These are the serious investors. They were usually born into their wealth, but have been working hard over the years in their own independant efforts. They have high demands in their investments, liking a board position and try to impose their own strategies into their invested companies. They make high investments, usally between $100, 000 to $1 million dollars. They aren't too keen on becoming active in the company's management, but if their invested companies start to decline in productivity, they tend to start putting more effort into the company. 

Professional angels- These investors are employed in their field, such as lawyers, accounts, etc. They like to invest in companies that are based in their industry because they are familiar with it.  They may invest in numerous companies, with investment usually between $25,000 to $200,000. They are great for the first round of capital needed for a startup, but usually do not invest in the same companies more than once. They are also great, for they may provide their services, such as financial or legal, at a discounted rate.

Other kinds of angel investors

Head angels- These investors are are great for bringing together other investors in your company. They like to take lead, and be the investor in the company.

Mentor/guardian angels- These investors are great mentors and give good advise in their invested companies. They are great for young companies, and new entrepreneurs.

Generational angels- These angels have been born into investments. They are usually younger then the average investor, but don't let that fool you.

Intentional angels- These investor's main mission is to take over the founders in their invested company. They may appear interested in the company, but be careful of their intentional motive.

Typical angels- These angels have a high net worth  and like to invest because of social responsibility and community involved. Anything to make themselves look good.

Inexperienced angels-These angels are the "babys" and not yet established any experience and credibility in angel investing.  They invest in what others are investing in, not in what they want to invest in independently. After their first few investments, they will either give up, or continue investing thoughout their lifetime.

Female angel organizations-  These angel networks are dedicated to supporting women in the male-dominated workforce. While they do focus on women, they don't technically only invest in companies managed or owned by women.

Venture capitalists who are also angel investors (“moonlight as angels”)- If an investor in a firm finds an investment extremely favorable, they might decide to privately invest. They may do this if the venture does not fit the firm's criteria, but will personally get a great opportunity from the investment. There investors are also called "moonlight angels". Some VC organizations have strict rules and prohibit their investors from making personal investment, but this is rare.

Will work-for-equity angels- These investors have services they like to trade for a percentage of shares in the company. This can help a startup by saving money in the long run. However, if you are not aware of the value you are exchanging, it can decrease the economic value of the company.

Non-company building angels-These are technology investors that only invest in developing technologies, rather than creating a portfolio in investments. They are great for entrepreneurs looking to license their inventions.

 Selecting a well-matched investor on Pitch Street can make quite difference between establishing a strong foundation for a company or a failing venture. So when you are looking for an investor, be sure to know what you are getting yourself into.

Thursday, December 6, 2012

Due Diligence Red Flags

- Due Diligence Red Flags  -

Yesterday, I gave you a due diligence checklist to help you prepare for when an investor is seriously contemplating investing in you. Today, I will explain to you what angel investors consider to be "red flags" when they are preforming a due diligence to the entrepreneurs on PitchSteet.

Entrepreneurs who do not invest their own money in the venture
Why would an investor put money into your company, if you have not put in any of your own capital? If you are not willing to risk your own personal money, most investors would take this as a lake of confidence in your initiatives. It just makes sense that the angel investor would not take you seriously and drop your investment right there. 

Entrepreneurs with small amounts of numerous investors
If you have many inexperienced investors, angel investors would see this to be problematic, and not take your venture seriously. However, if you have family and friends investing, that would be different. But when you are looking for investments, only take those that are experienced and in large amounts. This shows that you aren't just taking money from everyone and yo are serious about this venture as well.

Lack of product diversity
  A company should have some diversification of goods and services to be successful. If you only have one product and it fails, then so does the whole company. Angel investors like to see numerous products and services, a backup plan. 

Claims of “no competition”
It is impossible to have "no competition". Especially in this day in age, there will always other companies to compete against. You will need to do a market and competitive research before you introduce your company to investors. Angel investors look for your competitive advantage in every company, meaning you will have to present why your products and services are better. 

Other debts and existing liabilities
If an investors discovers during a due diligence process that you have other liabilites and are in debt, thsi will indicate to them you have poor financial management skills. He might assume that a portion of his investment might go towards paying off your debt and to other investors. He is investing in your company, not to pay off your bills. 

Lack of participation of early investors
If no one else wants to invest in your company, it must mean that the angel investor is looking over something. If past investors do not want to reinvest, then interested angel investor will conclude that your company won't be able to pull through. 

Poor management history and unsettled management team issues
The management team can determine the success of a business. If your team does not have any experience or a track record of making mistakes, the angel investor will most likely steer clear of your investment. They like businesses with a strong, well-rounded management team. 

Family-related ventures
Most angel investors don't mix family with business. Often at times, there is too much drama in the workplace when family is involved. Business owners will sacrifice hiring experienced workers by keeping their family on board, which can effect the productivity and success of the business. 

Predicting exceptional projections
The market is all over the place, and it can never be confidently predicted. To forcast exceptional financial projections for company is very unrealistic.  Also know as "hockey-stick" projection growth. Keep it real, and keep in mind that surprises can happen in the market.

Incomplete financials
Angel investors expect you to take the financial skills as seriously as they do. If these has been no hiring of advisors, or inexperienced advisors involved, they will take this a red flag. If there is any doubt in the financials, then the angel investor will doubt you. 

Lack of board of advisors, board of directors, or the presence of only internal parties
If you do not have an experience board team, angel investors will question your leadership and credibility. You should also be asking external board members for advice to get a second opinion on your company's ideas.

Controlling business owners
Employees are a very important factor in businesses. When a business owner is too agressive and controlling, it can cause an uncomfortable work place for the employees as well as  the investor. This can decrease productivity if the employees cannot focus on their work. Angel investors like to avoid the companies with a business owner that is controlling.

Unrealistic valuation for the company
If you request an too much capital, this can signal a problem to the angel investor. Not only does it show you have an unrealistic view on the company, but you and the angel investor have huge differences. 

Non-negotiable agreements
In business, there will always be negotiation, you cannot avoid them. However, if you create a contract that is not favorable in any terms to the investors, the will take this as an indication that they cannot work with you. 

Intellectual property protection/ownership problems
Angel investors don't want to deal with problems they don't have too. Straighten out all of your issures concerning protection and ownership rights for all their products and properties before seeking angel financing.

Pending regulatory issues
If you have any pending regulatory issues, this can stop or slow down the success of your company. Angel investors will steer clear of your investment.

And there you have it, these are many red flags you should be aware to resolve and fix in order to raise capital for your startups.

Due Diligence Checklist

- Due Diligence Checklist -

What is a Due Diligence? 

A due diligence is a formal process of validating representations made during an investment investigation. There are usually lawyers involved with the purpose for doing background checks on the founders and preform company searches. There are also usually accountants involved to review the financial information that was submitted in the business plan. They check over the historical financial information, the tax filings, and check the accuracy of the projected financial information. On PitchStreet, almost all of the investors preform a due diligence if they are considering to invest in your company.

Every investor has their own formula for preforming a due diligence on your company. Some request all the information at once, in a detailed documentation, while others request information at different times and stages of the check. It does not really matter how the angel investor approaches the due diligence, it is just proven that there there will be a much higher profits returns when one is preformed. There may be many questions and could take up to several weeks to preform. The more prepared you are the better

Here is a due diligence checklist to help you prepare:

General Background
  • History of the company and any predecessor companies.
  • Reason you are in this business
  • Your company’s short- and long-term objectives.
  • The company's financial needs.
  • Your company's advantage
Management and Human Resources
  • Organizational chart.
  • What is the makeup of your Board of Directors?
  • Who are your professional advisors involved?  (lawyer, accountant, consulats, etc.)?
  • Is the management team set and completed? Any gaps?
  • Is there a chance, or any plans, for a change in the management team? Explain
  • Are there any employment agreements? If so, what are they?
  • Is there any confidentially agreements? If so, what are they?
  • What are the DOB, SS# and addresses of main principles on board? (Background check)
  • Company size (employees)
  • Is there an employee handbook? Can I have a copy?
  • What needs are there for the staff? Any current, or anticipated changes?
Products or Services Offered
  • How will customers use your product or service?
  • What benefit(s) will the customers value from your product or service?
  • How does your product or service compare:
    • Price?
    • Quality?
    • Current method?
    • Competitive product?
    • Service?
    • Availability?
    • Engineering?
    • Credit terms?
  • Is there patent, trademark or trade secret protection?
    • If so, who owns it? Is there a license from the owner of the technology?
  • What is the demand? Is it demand basic or created?
  • Is it a mature market?
  • What are the current trends in the industry? What changes have been made in the past years?
  • What is the geographic market?
  • Is there an opportunity for exporting?
  • Where is the growth opportunity? (Roll-up strategy? M&A’s?)
  • How is your market segmented?
Customers (if they exist)
  • Who are your customers, or who will they be?
  • Why are customers buying or why would they buy from your company?
  • Are there any long-term purchase agreements?
  • Is there any trend among customers toward:
    • Integrating the manufacturing of this product into their operations?
    • Purchasing substitute products?
    • Switching suppliers?
  • Who are your major competitors?
  • What is their unique advantage?
  • Are they growing?
  • How do they compare on key buying issues?
  • What are their plans?
  • How will they react?
Sales and Marketing
  • What are your pre-contract sales costs?
  • When is your sale closed?
  • How much custom engineering is required?
  • What are the upgrade obligations? Are they clearly defined?
  • Is your product/service well documented?
  • How much engineering support is required on installation and in operation?
  • Do you have a direct sales force? What is its size? Cost? Effectiveness?
  • Are sales representatives used? How are they selected and compensated?
  • What are your channels of distribution?
  • What advertising and sales promotion practices are used?
  • What is your sales forecast and justification?
  • Who are your target markets?
  • How is your product priced?
  • What are your company’s credit policies?
  • Fixed assets, location and condition.
  • Location and description of facilities.
    • Assessed and fair market value.
  • List of your future facility and equipment needs.
  • Explain your basic manufacturing process?
  • How are procedures being modified to improve efficiency?
  • What system is in place to assure the quality of your product or service?
  • What are your critical raw materials?
  • Who are your critical suppliers, contracts?
  • What factors might cause a substantial delay in production?
  • Status of inventory, including level and obsolescence.
  • Do you have any contractual obligations other than those requested here?
Financial Considerations
  • Audited financial statements
  • Capitalization Table
  • Do you have any grants? Do you have any grant opportunities?
  • Sales backlog information.
  • Aging reports – both A/R and A/P (most recent).
  • Company’s tax I.D. #.
  • What are your projected financials, including cash flow?
  • What are your sources and uses of funds?
  • Do you have a strong cost accounting system in place?
  • Is your insurance coverage adequate?
  • What is your tax liability and payment record?
  • What is your worst-case scenario?
Legal Matters
  • Articles of Incorporation.
  • Bylaws and Amendments.
  • Minutes of Directors’ and Shareholders’ meetings.
  • Certificate of Good Standing from the State of Michigan.
  • Subsidiary listing.
  • Contractual agreements.
  • Stock Option Plan.
  • Do you have any current or anticipated litigation (State or federal agency)?
  • Regulatory hurdles (e.g., FDA, animal use, clinical studies, GMP, ISO)
  • Environmental regulation/violations (waste discharge, RCRA, OSHA, EPA)?
  • Warranty and service guarantees.
  • Do you have any product liability?
If you go over this checklist, and make sure you have all the information, this will help make your due diligence go much smoothly and up your chances to get funded.

Monday, December 3, 2012

The Funding Process Part 2

~ When Do Angel Investors Usually Invest? PART 2  ~

Yesterday, I talked about the first three phases when starting a new business that investors look for when considering to invest on PitchStreet. Today, I will talk about the last 5 crucial steps that you will go through when you have gotten their attention through your pitch and business plan.

1. The Application Form
Some angel investors have an application form that they will most likely get you to fill out, while other may just request an executive summary. It will be up to you to get all the mandatory documentations from the investor in order to finish a complete application. Most investors will have an application form on their PitchStreet profile that you can download.

2. Eliminating Investments
For about 1-2 weeks, investors will go through all their potential investments, and eliminate those  that fail to meet their minimum requirements. Any failed submissions, missing information, and poorly structured business models can jeopardize the chances of making it through this process. You may or may not be notified if your business passed.

3. The screening process
At this point, there is usually less that 25% of the applications that made it through to this level. Now for about 3 weeks, angel investors will request any updates that may have come up. They will request an inclusive business plan from you which you may need to further tailor to fit their best interest.

4. A Face-To-Face meeting
An entrepreneur is considered to be extremely lucky to be able to reach this point of the review process since obtaining angel capital is a competitive practice. During this stage, they will be invited to personally present their pitch and business proposals to the angel investors. Since Pitch Street is an online investment networking, usually they request a Skype meeting or phone call. After you present your pitch and made your presentation, they will ask you a series of questions that you must be prepared for. I will talk about these questions in the next blog. 

5. The Due Diligence
Once an investor is truly interested in your business plan, they will do an assessment of the business strategy. This is call a due diligence. This is the formal process of validating the representations you made in the business plan. In other works, an investment investigation.  Lawyers and accounts will be hired to preform company searches, background checks on the founds, reviews of historical financial states and tax filings. They will also determine how accurate and suitable the financial projections were in the business plan. This can go on for several months.

And there you have it, the last final steps you will go through before an Angel Investor will invest in your company. This should help you prepare yourself for when pitching investor on Pitch Street.

Sunday, December 2, 2012

The Funding Process Part 1

~  The Funding Process  PART 1~

Today I am going to
explain to you the funding process that you can be expected to go through when Angel Investors are considering to invest in your company. These tips will help you up your chances of funding your business.

First three stages of a developing a company

In the first phase, the seed, of the development of a company, there needs to be prototype, or business model, of the business idea. This will help organize the business plan and help form a management team. It is also a good idea to put together a marketing concept.

The next phase a business will go through is the the start-up phase. This is when one takes the business plan that has been developed and presented to the investors. The market strategies should also be in acknowledged as well. 

Next is the  first/early-stage of a company’s development. This occurs when a new business has successfully launched and have test marketed their business plan. During this stage, the new owners would have also put together their management team. This team will work together to help take the business to the next level.

How an angel investor can help
During the first stage of a company when it is developing, almost all entrepreneurs will face new obstacles and problems that would be hard to deal with alone. This is why it is best to get advice from others whom are experienced to ensure the success of the business.  Angel investors are the best for this advice. They are experienced and can help guide you through any troubles and questions.

Of course, finding an angel investor is not easy. It can be a difficult process, as well as fairly competitive. To increase the chances of getting funded by an angel investor, you can follow a list of steps, which I will now explain to you.

1. A large ROI
Angel investors invest in your business with the same motive you do when starting a business--to make money. The higher of risk per investment, the higher return they expect. 

2. The investment motive
Since these investors are experienced in your industry, they want to help in any which way they can. They want to help you build a successful business just like they did, if not more.  You will not only have to tell angel investors why they would want to invest in your company, but you also need like let them know why they would want to invest in you, the entrepreneur.

3. A strong pitch and strong business proposal
Practice, practice, practice. This will help you enure that your pitch will be strong. Along with the pitch, Angel investors  like to see a detailed business plan. This business plan should include your business's competition, marketing plans, target market, any financial projections, and so on. The more detailed the better. Here, you can find a business plan generator. This makes the process of building a business plan much easier.

These two things, the pitch and business plan, will up the entrepreneurs chances of raising angel capital. Each angel investor is different, so it would be wise to do some research on who your will be pitching to, and tailor it to the best interest of the investor. You will most likely find that there are three types of angel investors on PitchStreet

  • Angel investors concerned with economic gain- these investors are motivated by money, especially in the public's eye. Entrepreneurs who seek these types of angel investors should not only stress the purpose of their business idea(s) but also mention shareholder percentages and ROI in their pitch and business plans
  •  Hedonistic angel investors- these are risk takers, and they love the thrill from it. These are good for high risk businesses, so if you are seeking these investors, make sure you have a well prepared business plan. These investors are great in that they also put more time into helping the entrepreneur market their innovative ideas.
  • Altruistic angel investors- these investors take pleasure in helping young companies thrive and enjoy promoting community development and job growth. Entrepreneurs who seek capital from these types of investors should perhaps stress the advantages of economic growth in communities and economically sound technologies.

4. A solid management team
Investors like to see a strong management team. They look for a group of confident, aggressive, people that are experienced and skilled in the business's industry.
Everyone on the team should have a strong background that will ensure the investor that everyone knows what they are doing. 

5. Proper business structure and organization
Every business that wants angel capital must must have a proper and organized business structure. Angel investors expect not only a percentage of the company, but part ownership of the business. For the exchange of providing the business with capital, these investors will help with company operations, managing, mentoring the staff, to name a few. And of course, a large return of investment.

6. A well-defined exit strategy
Before the capital is given to you, you and the investor create an agreement of how long the investment will go for, a time frame. This is the period of time the angel investor will stay active in the company. Once this phase is done, this is when the investor will exit, creating a need for an exit strategy.

As you can see, this is a lengthy process that must be completed if you wish to get funded, but is very crucial

Stay tuned to learn more about the funding process from PitchStreet!