Angel Involvement After Closing The Deal
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It is extremely important angel investors and entrepreneurs agree with each others’ business goals and perspectives before a deal is financed. However, the relationship between the entrepreneur and angel investor does not end when the deal closes. After the closing of the deal, it is vital there be a positive, open, and honest relationship between both parties throughout the span of the company’s development. The following are some expectations angels have and options to consider after the closing.

Systematic reporting process
This system refers to the investor reporting package which keeps an angel informed about the company in a timely manner. The entrepreneur is expected to send a quarterly letter to all investors regarding the company’s performance as well as a monthly basis contact with lead investors concerning the organization. This systematic method makes the entrepreneur more accountable and proactive in responding to early signs of problems within the company. In addition, when angel investors are more informed of the company’s performance, they are more likely to participate in future rounds of company funding.

Alternatives for company failure
The high risk investments angel investors are known to make can sometimes not be as successful as the initial prediction. In an event a company fails, angel investors may have to resort to some alternative solutions to prevent company downfall. Due to the fact that angels hold a minority position within a company, they are responsible for convincing the founding shareholders to agree with any of these alternatives.

  1. If an angel feels the management team or board is weak and unproductive, they can replace the founders on the management team and/or change the board of directors.
  2. When a company is not generating enough profit or is on the verge of bankruptcy, investors can provide any additional funding for the company themselves.
  3. When investors do not want to reinvest in the same company, they can raise additional capital from new investors.
  4. If an angel played a passive role in the company initially, they can take more of an active role in day-to-day operations to ensure quality assurance.
  5. An angel can also sell the company or merge the company with a larger business.
  6. An angel investor may decide to exhaust all company cash and then close the company’s doors forever.
  7. All of the assets of the company can be sold.

Protection of legal documentation/agreements
The primary reason for an angel investor’s legal protection is because the perceived value/significance of any outsider’s contribution to a business endeavor, whether the funding comes from an investor, service provider, etc., inevitably declines over time. When a company becomes successful sometime during its development, the entrepreneur will most likely attribute the company’s success more to his/her efforts put in and all the wise decisions that s/he has made, rather than to the investors’ funding, mentoring/advise, and contacts the investor has provided to make the business a success. Any verbal promises or oral understandings initially made need to be conveyed into legal paper form through attorneys. These legal documents should reflect the needs and concerns of both parties during the venture.

Levels of involvement/participation
Many angels play an active role in their portfolio companies. There are different levels of angel participation in a company. Most angels prefer roles b and c.

  1. The angel investor is completely passive and has very little contact with the founders of the company.
  2. The angel investor holds a company board seat and advises/mentors the entrepreneurs when they need advice.
  3. The angel investor holds a company board seat and is the formal advisor/mentor with set duties.
  4. The angel investor holds a company board seat where s/he assumes a full-time executive role.
  5. The angel investor holds a company board seat and eventually becomes the CEO.
  6. The angel investor obtains a majority position in the company and controls the existing board of directors.

Patience for success
Most angel investors were once entrepreneurs themselves and have experience in the industry of their investment. They truly feel a great deal of personal satisfaction when they witness their portfolio companies flourish and succeed. Due to the fact they often provide early-stage funding, they are aware it takes time to witness any financial progress and profitability in their investment. One of the assets angels possess is a tremendous amount of patience, which is characteristic to their success as investors.

The expectations between the angel investors and entrepreneurs must be clearly articulated prior to the closing of the deal, with legal documentation to verify any agreements made. To maintain a positive relationship with angel investors, it is the entrepreneur’s duty to provide their investors with quarterly financial reporting as well as timely company progress and/or problems. On the other hand, it is the angels’ responsibility to actively seek alternatives if a company is on the brink of failure. Being aware of all of these issues and active engagement by both parties will allow the entrepreneur and their angel investors to establish honest, solid relationships throughout the course of their venture.

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