BAYANGELS FUNDING PROCESS
Angel investing is an admittedly risky business. And most startups will likely require additional funding as their company grows. Successful angel investments can produce remarkable returns. However, the failure rate for angel investments is high. Frankly, most startups don’t succeed.
So, it is understandable why we are highly selective about the companies we do invest in. As an entrepreneur you can expect to be asked many questions, some that may seem either intrusive or redundant. The process also takes time. Prudent investors don’t rush into deals. You may wait for answers, become frustrated and annoyed that things aren’t moving along as fast as you would like, and there is no guarantee that after all your hard work you will succeed in getting funded—despite having pitched several times.
As entrepreneurs ourselves, we know that part of the process is accepting the parameters investors must work within to invest in companies that succeed. Remember that while we want your venture to be a success, our first priority is that we make successful investments.
Your responsibility is to learn as much as possible about angel investing. You should determine if angel investments are right for your company. To help entrepreneurs we host an Entrepreneurs Bootcamp during the year. You’ll learn most of what you need to know about being a successful entrepreneur from experts in every area important to success.
We get many applications for funding. To successfully navigate the process, follow our suggested guidelines:
- Apply through our online link at BayAngels.com. This will upload your application to a site that only our members have access to. Note: as prospective investors, we can’t sign NDA’s. We simply see too many opportunities to keep track of them all. Share what you feel comfortable sharing and remember that most of the value is created in the execution, not the idea itself. Also know that we value your confidentiality and will not divulge sensitive information.
- Explain in simple terms what your company sells, the need your product/service fulfills, and how you plan to make money.
- Explain how investors will profit by investing in your company. Describe the expected returns you believe are reasonable based upon what other companies in your industry have done. Or project what you see as potential earnings with supporting evidence.
- If you have a video describing your idea and company, that is always helpful.
- Describe your team’s experience and track-record of previous success. Describe the strengths and weaknesses of your team.
- Explain the significant, protected intellectual property for your business, if any.
- Provide a SWOT analysis for your business.
- What is your unique approach to selling that promises to generate more customers at a lower cost than competitors?
- Demonstrate the traction with customers that validates your business model. Can you provide research to validate your potential market?
- Describe the market and its size your company will reach.
- Outline your plans for growth and expansion (e.g. strategic partners, channels, buying and selling process).
- Who are your competitors and what are their strengths vis a vis your company and its product or service?
- What are your business priorities?
- What milestones and benchmarks have you set to measure your progress?
- How will your company make money sustainably into the future?
- What are your exit options (or alternatives)?
- How much funding do you need—and why?
- How did you arrive at the current valuation for your company?
- What are your financial projections—3 – 5 years, revenues, expenses, EBITDA?
- Who are your other investors (if any) and where have you pitched before? Our members need to respect other investor groups since we often work with them on deals.
BayAngels review every application and select the most promising for further review. We contact companies that appear to be excellent candidates for funding.
At this point in the process, you will receive one of the following:
- We will inform you that we’ve decided to pass on your request for funding. This isn’t always a reflection on your company—many have gone on to great success. It’s simply that we feel it isn’t an investment that meets our needs at this time.
- For those companies that we are initially interested in, you may be asked to do a follow-up conversation by phone or in person. This is to learn more about your team and your opportunity, and to judge whether there is some chemistry with our investors. You will receive our feedback at this point.
- For companies we are interested in investing in we extend an invitation to pitch at one of our events.
We try to host ten events per year at which six companies pitch. It is an open forum format with each company presenting for ten minutes, including Q&A.
Depending upon the feedback we receive from our members and guests after mindshare discussion, we advise the companies about the next steps.
An initial discussion of valuation and terms will happen early during the due diligence stage to be certain that we are all “on the same page.”
When we determine that a company needs due diligence in order to proceed with the funding process, we share information with a team of investors that has knowledge of your industry and your particular business model. We also request members who have a high level of interest in the opportunity to join the due diligence team.
During due diligence you will likely be asked to respond to many questions or provide additional information about your business. We view this as a supportive, collaborative process. It’s an opportune time to leverage the knowledge and expertise of the due diligence team to assist you in refining your business plan and improve your chances of eventual success.
During Due Diligence we will be looking for:
- Investment opportunity – detailed Business Plan analysis, competitive review and analysis, and current capitalization.
- Team – management team background, experience, and expertise. Reference checks.
- Financials – detailed financial analysis.
- Technology – independent peer review of the merits of the technology.
- Intellectual property – patent claims and covenants.
- Prior deals with other investors.
- Existing and potential contracts.
- We will speak with your customers or potential customers.
- Organization – we review articles of incorporation, partnership agreements, and affiliations.
Team sheets will be negotiated prior to funding.
Closing the deal is only the beginning of the angel funding process. Portfolio companies now have access to a network of contacts and experienced professionals who can provide valuable guidance to support the growth and success of the company.
At times an investor may require a board seat at your business. This enables the investor to do close oversight and provide valuable insider support to you.
You will also be expected to submit quarterly reports to the investors to keep them apprised of your progress. Again, this is part of the collaborative approach BayAngels take to maximize the potential for your business to succeed.
You are encouraged to develop relationships with our members. Often they are willing to help with advice, valuable introductions, and key connections to help you succeed. BayAngels are typically entrepreneurs themselves and enjoy contributing to your success.
Some of our members are also consultants who provide valuable services for a fee. You have no obligation to use them and do so at your sole discretion.
As a partner in your success, we are here to provide support in any way possible. At BayAngels we part of your team.