4 Key Questions to Help You Get Ready for Angel Investors
Angel investment has become an important source of funding for Startups and growing companies. However, as you consider seeking funding from Angel Investors, it is important to know what you are getting into and what to expect.
Below are four key questions to ask yourself in order to determine if you and your company are ready for funding from Angel Investors:
1. Are you prepared to own less of your company?
- The key concept here is equity dilution—when you sell stock to others, you will end up owning less of your company.
- Be careful—Angel Investors likely are more experienced than you when it comes to funding deals, valuation, and eventual stock ownership.
- Focus on higher valuation. A higher valuation will help you own a larger percentage of the stock after the financing. If you end up owning too little of your company, then you may resent your decision and be less effective in pushing your company forward.
2. Are you willing to give up control of your company?
- Angel investment deals are often like mini-venture capital financing deals. You can expect to see an investor or two on your Board of Directors, who then may have control over the Board or at least its major decisions.
- You no longer will be the major owner or decision maker.
- Consider why you started your company—did you create your business to be your own boss or are you looking for growth capital to grow and sell your company?
3. How soon do you want to sell your company?
- Angel Investors are investors plain and simple and they will expect to see a return on their investments.
- The most common path to ROI is by selling the company.
- You need to determine if your mid and long-term goals for your company are aligned with the investors’ focus on selling your company.
4. Are you ready for investor relations?
- Investors will have questions and expect updates. As part of their investment, the investors often will receive information rights that will require your company to provide them with periodic updates and financial information.
- Remember, you could end up with a large number of Angel Investors as stockholders in your company depending on the average size of their investments.
- Set expectations early about investor relations and when you will provide updates so that the investors understand your ground rules.
If you are considering funding from Angel Investors, which of the above considerations is most important to you?