Raising Money from Angels, Pt. 2
Funds tend to be fairly quick to a 'no' or have someone at the firm helping with research and diligence to get closer to a 'yes.' Angels are researching and investing themselves.
There are lots of places to invest money today, but the allure of investing in the next Facebook, Palantir or Figma draws individually wealthy 'angels' to invest in Silicon Valley's budding young startups.
As a founder, angels are attractive -- they bring experience, connections and cash to the table. But since Angels tend to be managing their own hard-earned money and typically run the whole process themselves (finding companies, researching the market, conducting due diligence, etc.), they tend to ask a lot more questions than funds that have teams of analysts crunching numbers and writing exposés on what the world needs more of.
As a founder, if you're talking to angels, be prepared to answer more questions (all things you should know about your business, but will take you longer to discuss with someone who invests as a side gig).
Below is a list of some questions founders should be prepared to answer when raising money from Angels:
General:
What does the company do?
What is unique about the company?
What big problem does it solve?
How big is the market opportunity?
Where is the company headquartered?
Market:
What is the actual addressable market?
What percentage of the market do you plan to get over what period of time?
Why does your company have high growth potential?
Founders & Team:
Who are the founders and key team members?
What relevant domain experience does the team have?
Why is the team uniquely capable to execute the company’s business plan?
What motivates the founders and how are they showing their commitment to the business?
How do you plan to scale the team in the next 12 months?
Who is on the board? How big is the board?
Products and Services:
Why do users care about your product or service?
What are the major product milestones?
What are the key differentiated features of your product or service?
What have you learned from early versions of the product or service?
Can you provide a demonstration of the product or service?
What are the two or three key features you plan to add?
Competition:
Who are the company’s competitors?
What will give your company a competitive advantage?
What are the barriers to entry for new entrants?
What advantages does your competition have over you?
Compared to your competition, how do you compete with respect to price, features, and performance?
Marketing and Customer Acquisition:
How does the company market or plan to market its products or services?
What is the cost of a customer acquisition?
What is the projected lifetime value of a customer?
What is the typical sales cycle between initial customer contact and closing of a sale?
How many customers does the company have today? LOIs? Contracts?
Progress in the Business:
What early traction has the company gotten (sales, traffic to the company’s website, app downloads, etc., as relevant).
How can the early traction be accelerated?
What has been the principal reasons for the early traction?
What are the biggest challenges you're facing in the business today?
Risks:
What do you see as the principal risks to the business?
What legal risks do you have?
Do you have any regulatory risks?
Are there any product liability risks?
What is your exit strategy?
Intellectual Property:
What key intellectual property does the company have (patents, patents pending, copyrights, trade secrets, trademarks, domain names)?
What comfort do you have that the company’s intellectual property does not violate the rights of a third party?
How was the company’s intellectual property developed?
Would any prior employers of a team member have a potential claim to the company’s intellectual property?
Will there be any claims by a party claiming to be a co-founder? (Note that this issue arose with Facebook and other companies.)
Financials:
What are the company’s three-year projections?
What are the key assumptions underlying your projections?
How much equity and debt has the company raised; what is the capitalization structure?
What future equity or debt financing will be necessary?
How much of a stock option pool is being set aside for employees?
How much burn will occur until the company gets to profitability?
What are the key metrics that the management team focuses on?
Financing Round:
How much is being raised in this round?
Who are the other investors so far?
What other means have you used to raise capital (Kickstarter, etc.)? How did you use those funds?
What is the company’s desired pre-money valuation?
What is the planned use of proceeds from this round? How far will this capital get you?
What milestones will this round of financing help you achieve?