Let’s review the steps we’ve discussed in the previous chapters. The steps that a company typically takes to raise money from angel investors or venture capitalists look like this:
- You find a point of entry for the accelerator, angel group or VC firm you are interested in.
- You make sure that the group/firm is involved in investing with a company like yours and your company’s stage.
- You meet someone who can provide you with an introduction so you are not submitting your application as an unknown company. This is not essential with accelerators perhaps,
- You apply, providing things like a business plan, a description of your management team, and a Power Point deck.
- A screening committee looks at your application. Typically the screening committee is making sure that your startup is not a Lifestyle company, that your startup matches the profile sought by the firm, that you have an exit plan, that the market is large enough, that you have a qualified management team, etc.
- The executive committee or firm schedules a first face to face meeting or phone screen.
- If you pass this test, then a more formal presentation is scheduled to some kind of selection committee or group.
- Typically at this meeting you will do a presentation using your Power Point deck.
- An angel group or accelerator will have an open discussion after your presentation and vote yay or nay on moving forward.
- An accelerator may may a decision at this point, without formal due diligence. An angel group will almost always require due diligence.
- Due Diligence part 1 – the 100 to 200 point questionnaire.
- Due Diligence part 2 with interviews of customers, references, employees, tech, etc.
- Having examined the results of Due Diligence there is a second vote.
- The exec committee produces a term sheet. It will state a proposed valuation for the company, the amount of money the firm plans to invest and any conditions – board seat, observer rights, monitoring, milestones and tranches, etc.
- If the term sheet is agreed to by both parties, legal documents are drawn up.
- Once the legal documents are signed, money is wired into your company’s bank account. The relationship with the investor begins in earnest.
- There may be more funding, series B, C, etc.
- You move your company toward your liquidity event (acquisition or public offering) which provides your exit for investors.
What if all of this investor stuff is not for you?
What if you have read all of this and you have decided that accelerators, angels and venture capitalists are not for you? What are some other options for raising money?
Then we go back to this page and explore the other options in its list.
Keep in mind the key advantage of accelerator, angel and VC funding: if it is smart money, a key investor can accelerate your company significantly. No bank loan or credit card loan can do that.