In annother interesting article from the Business Angel Blog, I found this discussion on the Angel Investment process.

Most entrepreneurs with a business idea, business plan and need for funding may not have gone through the process of acquiring angel funding before. When looking for angel funding it will certainly boost your confidence if you are already familiar with the process, the next steps and how to prepare before meeting with an investor.

Although, where can I find angel investors may be your first questions, it may be more important to first be prepared to meet with an investor even before engaging yourself in the process of finding angel investors.

The process will normally go something like this:

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 will need to start arranging it immediately. Negotiate key issues and, what if, scenarios.

Give the angel a copy of your 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?

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. 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. If asked for either of these, get advice from your solicitor.

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. Make sure everything is in writing, including all the key issues. The larger the investment, the more complicated and time consuming the investment process is likely to be. For larger investments you may want to use specialist advisers who are experienced with this kind of deal.