As an active angel investor and the co-founder of MergeLane, an accelerator and fund focused on companies with at least one woman in leadership, I’ve made 24 investments over the past year. All 24 of those entrepreneurs followed different investment-closing processes, many of which created mounds of unnecessary paperwork and legal fees. After observing this and raising angel capital myself, I have learned a few tricks to streamline this process for both the entrepreneur and the angel investor. Here they are.
If you haven’t done so already, I would recommend finding a startup-savvy lawyer first and foremost. As a general rule, the most efficient closing processes I’ve experienced have been executed by startups represented by reputable attorneys who regularly represent startups. You can read my previous post on How to Choose the Best Lawyer for Your Startup.
I would also encourage you to ask your lawyer to explain the “why” behind the steps they recommend. Read on for specific examples.
To clarify, the process I’m addressing is that which takes place after you’ve finalized the terms of your investment and drafted your final investment documents.
An efficient closing process minimizes each of the following:
Before figuring out your process, ask both your lawyer and your accountant to give you a list of all of the things they’ll need from your investors over the course of the investment. This may include:
I’d recommend collecting any information you’ll need in the future with any documentation you’ll need to finalize the initial investment. Obtaining information upfront will minimize the time you’ll spend tracking it down later.
Once you’ve developed a list of all the information you’ll need from each investor, I’d suggest working with your lawyer to create a folder with the following:
• All of the documents your investors will need to sign to finalize their investment. I would include the term sheet with these documents to aid in easy reading for investors.
• A signature packet including:
Now, let’s discuss how and when to actually send these documents. To determine this, you’ll need to figure out a couple of things:
After determining both of the above, I would suggest the following:
• Get verbal commitments: When you meet with prospective investors, get as much buy-in as possible before sending the documents. Discuss the terms of the deal and the amount they plan to invest.
• Send any documents ready to be signed: As soon as investors commit, send on any documents they can sign to firm up their commitment. For example:
Lastly, I have a few general tips to share:
Most investor–entrepreneur relationships last longer than the average marriage. Following these easy steps will not only save you time and money, but will set the tone for a productive relationship for many years to come.
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