Usually depending on the conversation thus far, we would roughly know if we would like to proceed to the next stage here. If we are to proceed, we will be asking the founders for more detailed information to further support what they have shared.
Usual stuff we try to understand from supporting information provided:
- Financial projections
How many months are they raising for? Is the cost estimation realistic? Is the headcount plan realistic? What kind of sales projections and with what kind of resource plan?
- Incorporation and shareholding structure
For our preference, the shareholding structure needs to be official before we commit our investment. Other than ESOP provisions, co-founder ownership is best to be properly reflected at this stage to avoid ambiguity and problems down the road.
- Incorporation evidence
Both local and overseas entities where relevant. Holding company structure and nominee arrangements if relevant.
- Capital usage to-date
Regardless of sector and stage of growth, a founder needs to know how to manage the cash and be capital efficient. Investing the limited resources wisely and knowing what kind of expenditure to prioritize are key traits of a good and responsible business owner.There were times that I asked for recent bank statements too just to get a sense if the finances are well managed.
- Traction support and growth proof
Google analytics, sales pipeline, etc anything that can support the growth numbers claimed. Most importantly a test account for us to experience the product.If we need to get an expert to give a view, we will let the founders know before we share the access.For product centric or research centric companies, we visit either the labs or find a way to experience / observe the products. Before we committed to Ion Mobility, we test-rode the bikes at some old Tuas factory area.
- Time Frame
For my personal investments (with no syndication involved): It takes 2 weeks to almost a month from first reviewing the deck to the first meeting. Post the first meeting, another sign that if we are keen to proceed, we would ask for the draft of the investment document.I like to pre-read these and knowing the terms set. Whether they are usual terms, norms practiced or are there unusual terms? If it’s a SAFE or KISS rolling close sort of round, I would ask to see all the signed notes to make sure terms do not deviate too much.After we reviewed the data room, clarified further queries, we make our decisions usually within the next 1-2 weeks after our ‘family investment comm meeting’. In total from first communication to agreeing to invest is usually 3-6 weeks.
I hope this sharing is useful for fellow angels as a reference point to compare with their own styles and methods.
For founders who read this, I hope it gives a sense of how much efforts that angels have to spend to understand your business before we commit.
This post is a part of an angel investor’s evaluation framework, you may read the following posts for the full version: