Tweet

Angel Investors - Due Diligence

Written by: Evan Carmichael

Article Overview: Due diligence is the process of researching an opportunity to come to a decision whether an investment should be made or not. There are typically 5 key areas that angel investors will look at in their due diligence: People, Product, Sales, Financials, Legal.

Angel Investors - Due Diligence

Due diligence is the process of researching an opportunity to come to a decision whether an investment should be made or not. There are typically 5 key areas that angel investors will look at in their due diligence: People, Product, Sales, Financials, Legal.

People - Questions Angels Will Ask
- Do we share the same values?
- Can we work together?
- Does the management team have accomplishments and a reputation in their industry?
- Does the team have a history of running successful businesses and returning value to investors?
- Are the key people in place? Are there any gaps?
- Are the founding members still involved? How so?
- How do I get along with the entire management team and not just the President?

Product - Questions Angels Will Ask
- Is there a proven demand for your product?
- Does the product actually work or is it just a theory? Is there a case study example?
- How does the product differentiate from its competitors?
- Is there any proprietary protection on the product?
- Do I understand how this product works?

Sales - Questions Angels Will Ask
- Is the President a technologist or a business person who can make sales?
- Are the projections realistic?
- Do the sales channels and plan of attack make sense?
- Has anyone on this management team sold to this industry before?

Financials - Questions Angels Will Ask
- Do I understand the assumptions behind the projections and do they make sense?
- Is the infrastructure in place for growth?
- Is the company valuation reasonable?
- What are the sales pipeline and cycle?
- What are the use of proceeds?
- Will I make 30-40% ROI per year?
- Will I be able to exit is 5 to 8 years?

Legal - Questions Angels Will Ask
- Is this company a legal incorporation?
- Does the company have a shareholder's agreement?
- Is it sophisticated enough to prevent company infighting?
- Are the holdings fairly distributed to prevent future problems?
- Is there a shotgun clause?

***

Related Articles
  How To Find An Angel Investor
  FIVE GREAT LESSONS FOR ENTREPRENEURS for Standout Pitches TO ACCESS ANGEL INVESTORS
  Funding Your Start Up
  Who Are Angel Investors
  Attracting Angel Investors

Article Tags: angel investors, due diligence, key areas



Related Forum Posts
toronto angel group - The Toronto Angel Group is a very hard group to get into. You have to have a very stable and viable business plan and they like to stick their fingers into your pie and they are usually looking to invest big bucks. Which means that they usually want to take control. If you look deeply into these groups you need to know someone or have a very good idea with potential clients backing you up. In my opinion, other sources of financing will give you better control of your business or learning to ask for the money upfront. One of the things I found is that new buisness owners are afraid to ask for the money upfront but every other business expects you to unless you have a proven credit history. Good luck with the Angel Investors
Re: SEEKING PRIVATE OR ANGEL INVESTOR - Do a Google search for Angel Investors. You will have many options to choose from. I think SCORES is one but I am not sure. Don't email them, pick up the phone and contact as many as you can. You need too have a rock solid business plan for these investors to even smile at the notion. Good luck with your journey.
Re: need a capitalist to hear me out - If you have solid business plan, there are thousands of Angel Investors and Venture Capitalists that will fund your project. Google "Venture Capitalist" and you will get tons of investors who are ready to fund your project
New Small Business Topic - Hello everyone, I'm on the lookout for new topics to add to my site. We just launched a Franchising section and are planning Human Resources section. Do you have any thoughts for a new section? Here's a list of what we currently have: Angel Investors Branding Bank Loans Business Coaching Business Plan Franchises (New) Insurance Legal Marketing Public Relations Sales Small Biz Loans Venture Capital
Angel Investors - From Wikipedia, the free encyclopedia the definition is: An angel investor or angel (known as a business angel in Europe), is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors are organizing themselves into angel networks or angel groups to share research and pool their investment capital. With that being said, Angel investors can come from a number of resources. You can try ACA (Angel Capital Association) in US / CA. Family & friends- Well, for me personally, I never do that type of business with family or friends for fear of a damaged relationship. I do not borrow from them, nor allow them to borrow from me. However, in my business I see it all the time. One place you can also try if not self employed, is with your current employer or even co-workers (of course having a good relationship with them is key). Also, get the information out to everyone and anyone about how you are seeking an angel investor, because you never know...just look at Evan's experience!


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

20 MORE Must-Have Search Engine Marketing Tools

Four Reasons Why Entrepreneurs Should Blog

Environment and productivity at the office

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.