What to Expect When Pitching Angel Investors: From Pitch to Money in the Bank

Securing funding from angel investors is a pivotal step for pre-seed and seed-stage founders. Understanding the process from pitching to receiving the investment is crucial for a smooth and successful experience. Here’s a comprehensive guide on what to expect during this journey.

Pitching to Angel Investors

1. Schedule Meetings

  • Once you have identified and reached out to potential investors, you will need to schedule meetings to present your pitch deck.

2. Deliver a Convincing Pitch

  • Be prepared to answer questions and provide additional information on the spot. Investors will likely probe into various aspects of your business to gauge potential risks and rewards.

3. Follow Up

  • After your pitch, send a thank-you email, reiterating key points and addressing any concerns raised during the meeting.

  • Be proactive in providing any additional information or documents requested by the investor.

Negotiating the Term Sheet

1. Receive Interest

  • If an investor is interested, they will discuss terms and propose a term sheet. This document outlines the basic terms and conditions of the potential investment.

2. Review the Term Sheet

  • Carefully review the term sheet with your legal counsel to understand all terms and conditions. Key components include:

    • Valuation: Pre-money and post-money valuation.

    • Investment Amount: The amount the investor will invest.

    • Equity and Ownership: The percentage of the company the investor will own.

    • Liquidation Preferences: How proceeds from a sale or liquidation will be distributed.

    • Anti-Dilution Provisions: Protections for the investor against ownership dilution in future rounds.

    • Board Composition: Structure of the board post-investment.

3. Negotiate Terms

  • Be prepared to negotiate terms to ensure they are favorable for both parties. Key areas for negotiation might include valuation, liquidation preferences, and board composition.

  • Focus on terms that impact your control, ownership, and future fundraising potential.

4. Accept the Term Sheet

  • Once both parties agree on the terms, sign the term sheet to move forward with the investment process. Remember, the term sheet is typically non-binding except for confidentiality and exclusivity clauses.

Due Diligence

1. Provide Documentation

  • Share all necessary documents requested by the investor for due diligence. This typically includes financial statements, legal documents, contracts, intellectual property details, and more.

2. Answer Questions

  • Be responsive and transparent in answering any additional questions or concerns from the investor. Due diligence is a thorough process where investors verify all aspects of your business.

Finalizing the Investment

1. Drafting Legal Agreements

  • Work with your legal counsel and the investor to draft and finalize the necessary legal agreements. Key documents include the stock purchase agreement and the investor rights agreement.

2. Signing Agreements

  • Both parties sign the final legal agreements to formalize the investment. Ensure that all terms agreed upon in the term sheet are accurately reflected in these legal documents.

Receiving the Funds

1. Complete Conditions Precedent

  • Ensure all conditions precedent outlined in the legal agreements are met. This may include things like completing specific milestones or obtaining certain approvals.

2. Fund Transfer

  • The investor transfers the agreed-upon funds to your company’s bank account. Confirm the details of the transfer and ensure all funds are received as agreed.

3. Confirm Receipt

  • Confirm receipt of the funds and issue shares to the investor as per the agreed terms. Update your capitalization table to reflect the new investment.

4. Celebrate and Plan

  • Celebrate this milestone and plan the strategic use of the funds to achieve your startup’s growth objectives. Ensure that you allocate the funds according to the budget and plans presented to the investor.

Conclusion

Understanding what to expect when pitching to angel investors and navigating the investment process can greatly increase your chances of securing funding. From delivering a compelling pitch to negotiating a term sheet, undergoing due diligence, finalizing legal agreements, and receiving the investment, each step is critical for your startup’s success. By being prepared and knowledgeable about this process, you can build strong investor relationships and propel your startup towards growth and success.