Angel groups follow several stages of review in order to make funding decisions. Below is a listing of these steps. It is important to recognize that groups may conduct these steps in a different order than is presented here.
Application Check with the angel groups Web site to determine what documents are required initially. Many groups want the executive summary of your business plan, while others have an application form.
Pre-Screening When the angel group receives a completed application, staff or a committee of members reviews it quickly to determine if it meets the groups general requirements. The pre-screening will eliminate applications that are incomplete, don’t meet the organization’s minimum requirements, or does not comply with the investing preferences of the organization. Expect one or two weeks for the pre-screening process.
Screening Once an application has been accepted for review, a group of staff and angels review and further define the opportunity. If the entrepreneur passes muster at this stage, the organization may select a “champion” for the opportunity and create a due diligence committee. The angel group may ask for your full business plan in this stage and some groups hold meetings with the entrepreneur during this stage. In general, about 10 to 25 percent of all entrepreneurs who apply reach this stage. Screening is usually completed within another one to three weeks.
Investment Meeting The entrepreneur is invited to make his or her pitch at a meeting of all members of the angel organization. A question-and-answer session follows the founder’s presentation. Members discuss key issues about the company and determine initial interest in making individual or group investments after the entrepreneur leaves the meeting. Such investment meetings are usually held every month or two.
Due Diligence A team of members interested in investing and specialists with knowledge of the industry under consideration conduct a thorough check on you and your business. The objective is to validate the business plan, including the management team, market opportunity and amount of funding required, and to negotiate a term sheet, thus placing a value on the investment. A further cut is made: 25 to 50 percent of the companies that reach this stage are actually funded, and the process can continue for two weeks to several months.
Term Sheet If the group chooses to invest in your company, they will negotiate with you a term sheet, a document that guides lawyers in preparing investment agreements and which determines the relationship between the company and investors. Sometimes angel groups will begin term sheet negotiation during Due Diligence. For more information on standard term sheets, other investment documents, and issues to consider, click here or visit the Books page on this website.