Business Angels

6. The Investment Process

6.1 Once a business angel has expressed an interest, officially confirm that the angel can provide the financing.

• Even though you may not have agreed final investment terms, you do not want to waste your time with someone who has insufficient funds.
• If you are still going to need additional financing, you want to start arranging it immediately.

6.2 Negotiate key issues and what if scenarios.

Give the angel a copy of your business plan see Writing a business plan, as a basis for discussing key points such as:

• The investment - how much the business angel invests, the form of the investment, and what the angel gets for the investment.
• Withdrawing money - what dividends, fees and salaries will be paid to each of you.Under what circumstances can these be changed?.
• Responsibilities - who makes what decisions and who will be responsible for each area of the business. How will individual performance be monitored and what will be done if performance is not satisfactory?
• Growth - what your main objectives are and how you will achieve the next stage of growth. What will happen if the business needs more capital?
• Exit - how and when the business angel will be able to realise the investment.Who will the angel be allowed to sell shares to?

6.3 Provide the business angel with any information required

The business angel will want to check financial and legal details, and confirm other points about your business and the market.

• Your accountant will be able to help prepare any financial information you need (eg annual accounts).
• For larger investments, the business angel may use professional advisers to investigate your business.

6.4 Negotiate any legalities the business angel is concerned about.

The business angel may ask you to provide:

• Warranties confirming that information you have provided is true. If the business later fails and it can be proved that you gave misleading information, the investor will usually have the right to claim compensation from whoever provided the warranty (typically you).
• Indemnities, where you agree to accept liability in certain circumstances. For example, if the company is sued in relation to contracts which have already been completed.

6.5 Agree the final investment terms.

• Your accountant and solicitor will be able to advise you on what form the investment should take and help you negotiate investment terms.
• It may be possible to structure the investment to make it more tax-efficient for the investor.