Angel investing comes with risk but it can lucrative; the key is to do your due diligence.
Following are the top 5 points we feel you need to consider before investing:
Day to day
How much do you want to get involved in the day to day running of the company? It is important to establish the parameters of your relationship from the outset; whether you want to be a part of the management team or merely updated as to the progress of the business at set intervals.
You’ve bought into the management team, they are part of the reason you decided to invest, but you will also want to protect your investment. One way of doing this is to include veto rights over certain decisions e.g. director’s salary, sale of the business and fund raising. However, when exercising veto rights, bear in mind that most successful business relationships involve compromise.
A lot of information has usually been provided to you which you have relied upon when determining whether to take a seat at the table. Warranties (promises) can be provided to protect your position by backing up the representations which have been made to you during the pre-investment phase. Examples of typical warranties included are in respect of the business plan, IP, employees, liabilities of the company and tax.
Who is willing to stand behind the assurances given? Generally, you would expect them to be given by the company, the shareholders and maybe the directors. You must remember that warranties are only as good as the financial worth of the parties giving them to you.
In today’s landscape, IP is a crucial asset of the company which must be protected and managed to maintain a competitive advantage. IP may increase a company’s valuation, decreasing the risk of the investment and making it an appealing acquisition target.
This is not an exhaustive list of things to consider when investing into a company, but is a good starting point.