Top tips for investors before tying the knot!

By sarah
Friday, 24th January 2020
Filed under: Angeladvice, Year2020

The relationship between investor and entrepreneur is like a marriage but one with a planned divorce - here are 20 things to consider before tying the knot!

  1. Start the process of relationship building well ahead of when the money is needed;

  2. You should undertake due diligence on the company prior to deciding to invest;

  3. Entrepreneurs can also undertake due diligence on you, checking your record of support or otherwise, so be prepared for this; 

  4. You should commit to a non-executive director or advisory role but not an executive role;

  5. Make sure that every contact with a company addresses the top three investment criteria in some form;

  6. The best exit is a trade sale for cash…it usually maximises value for all shareholders;

  7. The revenue potential of the company must demonstrate a scalable business that is capable of producing significant returns for you;

  8. The best business plans have a great executive summary – the point of an executive summary is to succinctly sell the investment opportunity, not to just describe the business;

  9. A compelling and fully costed business plan is essential;

  10. It is important that the company's management team understand and be on top of the numbers;

  11. Investors rarely want to 100% fund a business and will take comfort from other funders;

  12. Founders should have ideally had made or intend to make a cash equity investment in the company, i.e. have ‘skin in the game’; 

  13. Have a realistic valuation expectation – entrepreneurs have to be incentivised;

  14. An equity deal is not just about the headline valuation;

  15. An apparently unattractively high valuation can be mitigated by a liquidation preference;

  16. When considering an investment, you need to take into account any potential future funding rounds and the effect that may have on your ultimate shareholding and returns;

  17. Whilst there have been many successes by individual investors, participating in an angel syndicate can have significant benefits; and

  18. Syndicates need to be well managed to take advantage of the benefits and mitigate the pitfalls; the best syndicates use a charter.

  19. The most likely outcome of any one angel investment is failure.  However studies show, overall, business angel returns are enhanced by using a portfolio approach to investing;

  20. It is important at the outset for you to decide how you determine success;