Post from David Russick, Gopher Angels
Many entrepreneurs are unfamiliar with the processes and procedures of angel networks.
First, an angel network is a group of individual investors with each investor making his/her own investment decisions while working collaboratively with each other.
Many angel networks use a platform www.gust.com to help them organize the deal flow. It serves as a forum whereby the members can provide comments and ratings on each individual application for funding. It becomes a chat room for the members of the organization to exchange views on any particular venture.
Gust can be a tremendous tool for entrepreneurs to reach angel groups and venture firms throughout the U.S. and globally. Gust will tutor you through the process of building a profile including an executive summary, financial projections, business plan, and even a short video. Once completed, you then forward the profile to any group you choose.
In the case of Gopher Angels, our group will often have industry committees review the venture to see if it is a viable business concept in the context of that industry. Most angel groups have a prescreen committee to review the applications. The group will invite a limited number of companies to come before the investor members to make a formal presentation.
After the presentation and if there is enough interest, the next step is a "managers meeting" to meet the management team and spend 1 ½ to 2 hours learning more about the business. If interest continues following the managers meeting, a full due diligence process is started. Other angel groups may skip the managers meeting and go into the due diligence process right after the presentation. It has been proven that a thorough due diligence leads to a more successful investment. It takes time, patience, and a great deal of discipline for both the entrepreneur and the angel investor(s) to go through this process properly.
If the due diligence leads to an investment then there is a final negotiation. For an angel network the dollars will come from each individual investor separately even though it will be a collaboration of those individuals.
The total process can take 90 to 120 days. This may seem like an eternity for an entrepreneur who wants the funds now but for angel investors, it is necessary in order to make the most disciplined investment decision.
What do we look for in an early stage company?
There is a lot of focus on the team including the board of advisors. We also look at the character of the management. Are they open to ideas and consultation from others? A business leader can in no way know it all. Will there be a need for follow-on funding and how likely will that be achieved? There is a concern by the angel investors that their early investment in the business will be diluted by future investors.
In summary, the policies and procedures put in place by angel groups are designed to lead to the best investment decisions with a good return so the investor can turn around and reinvest that money with the next entrepreneur.