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Nov 18

Angel Investors 6

What Angels Expect continued

In order to protect their investment, angels often ask the business to agree to not take certain actions without the angel investor’s approval.

These include:

ß Selling all or substantially all of the company’s assets

ß Issuing additional stock to existing management

ß Selling stock below prices paid by the investors

ß Creating classes of stock with liquidation preferences or other rights senior to the angel’s class of security.

Angels also often ask for price protection, that is, anti-dilution provisions that will result in their receiving more stock should the business issue stock at a lower price than that paid by the angels.

Getting ready to approach an angel

To prepare to solicit an angel, several critical factors will aid in making the approach successful.

First, assemble an advisory board that includes a securities accountant and an attorney.

Two important functions of the board are to recommend angels to contact, and to work with the management team to develop a business plan to present to the angel.

The business plan itself should define the reason for financing, how the capital will be spent, and the timetable for going public or seeking venture capital funding.

In our next section, we will discuss the essential aspects of your business plan which need to be included prior to approaching an angel.

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