The equity raising process is described in detail from the investors perspective in this guide Investing in Private Companies Insights for Business Angel Investors
Investing equity in a private company is an all-consuming exercise for you as a private investor. You have to be prepared to put in considerable effort into the process: before, during and after the deal is done. This usually involves structured due diligence efforts in the initial phase of evaluating the company and then coordination or oversight of the completion of legal documentation, from issue of termsheet through to completion of shareholders subscription agreements.
Click on the topics to the right to learn more and check out the infographic below which details the process - feel free to share this image on social media and be sure to tag HBAN on Twitter & LinkedIn!
- ‘A marriage with a planned divorce’
Equity Investment can be described as a marriage with a planned divorce (the exit). Angel investors will often (but not always) have a high level of commitment to a business. This may include becoming a board member, director, or board observer. Over 75% of angel investors do actively contribute to the company to a level of 1 – 2 days per month.
- ‘Dating’ process
The process starts, to borrow the marriage analogy, with the ‘dating’ process. This is about getting to know, understand and trust a company and establishing the basis for a relationship. Often when an entrepreneur is just focused on money, it can come across as ‘needy’. We recommend where possible to look to build a relationship with a company before the money is needed.
- Developing your investment approach
It is recommended to develop an investment approach/thesis and to stick by this. This approach should factor in your knowledge and experience of a sector or business type, and your attitude to risk when assessing any investment opportunity. Often new angel investors will find a lot of the diverse pitches very interested, and a gold rush mentality develops, where an emotional instinct to invest supersedes the investors own level of rational behaviour. It is important to recognise this and take a carefully considered approach to your angel investment.
- Time to investment
The time from initial discussions to the completion of an equity investment can vary between less than 1 month to over a year. A typical time frame for a HBAN investment is three to six months. Most investment rounds HBAN Investors are involved in will have at least 2 other investor groups involved. These usually include Enterprise Ireland, a Seed Venture Capital Fund, and/or other private investor. With multiple investor involvement, often all parties are waiting for one party to lead the round and set the terms of investment. Agreeing and following termsheets, and concluding subsequent legals with multiple parties can be time consuming so patience is required.
- Investor commitment
As studies have shown, where there is significant investor commitment in terms of time (usually in the format of knowledge and experience sharing as well as leveraging key networks) in addition to the capital invested, then the prospect of success with enhanced returns is increased. This commitment is before, during and after the deal. An involvement of around two days a month can be optimal – however, circumstances may dictate (e.g. at another fundraising process, a senior recruitment, at exit, etc.) that more time is required on occasion. Where involvement moves beyond an advisory role by an angel and into hands-on engagement, this can often have a negative impact on the company and interferes with day to day operations.
- The exit
The relationship ends with the exit. Any previous exit experience that you may have will enhance the returns for all shareholders.