How to prepare for due diligence when applying for angel funding

1. thecapitalnetwork.org - @TCNUpdate
Angel Funding Part 2- Due Diligence:
Navigating People, Processes & Promises
Sal Daher
Walnut Angels
MIT Angels
@EmergingMarket
@angelinvestbos
Barbara Clarke
Pipeline Angels
Astia Angels
@beclarke
@PipelineAngels
@AstiaGlobal
Raza Shaikh
Launchpad Venture Group
Sky Ventures
@razashaikh
@LaunchpadVG
@skyventuresgrp
Deb Kemper
Golden Seeds
@Deb_Kemper
@GoldenSeeds

2. @TCNUpdate
1. Prescreening &
Screening
Referral is the key to
entering the process
2. Pitching
10-20 min
presentations +
Q&A
4. Term Sheet
Negotiation & Deal
Completion
Setting a market price.
Lead investor = key
6. Support & Monitor
the Investment
e.g. Corporate &
Advisory Boards
What’s the process?
3. Due Diligence
Varies between
groups & deal
leads
7. Exit
e.g. IPO, M&A,
Dividends/Royalties or
Shutdown
5. Syndication &
Funding
With other local groups
or individual Angels/VCs

3. @TCNUpdate
The point of due diligence is to:
● Give the deal an appropriate (due) level of scrutiny so that the group
as a whole can make intelligent investment decisions. As a part of the
process, it develops an interested cadre of potential investors.
● Form the team with industry knowledgeable members
● Assess the company so less involved members and syndication
members can decide
● Some groups start with a two hour “Deep Dive” which is either an
on-ramp into an exhaustive process, or results in a no-go decision
Why Do Due Diligence?

4. @TCNUpdate
●
●
●
●
●
●
●
●
●
●
@TCNUpdate

5. @TCNUpdate
● Lead investor
● Align the investment goals and funds
● Funding strategy
● Metrics
● Milestones
● Human Capital
● Advocate(s) for your company
Goal: Funders, CEO and Team Agree

6. @TCNUpdate
Individual Angels
@TCNUpdate

7. @TCNUpdate@TCNUpdate

8. @TCNUpdate
DO set up, organize and populate a data room, e.g., in Dropbox.
Developing, archiving and updating this information will help you stay on
track. Remember to keep a backup version of your data room before sharing
with investors!
DO prepare yourself for a 4-6 week usually parallel onslaught of
requests, meetings, conversations and materials from the
diligence team (while working to keep building your company)
DO anticipate & give a great deal of thought to the biggest risks,
weak areas facing your company and how you are going to
mitigate them. Early stage investors are comfortable with risk, but they
want to see that you understand them and have plans to address and reduce
them
DO listen to and respond professionally and honestly to
skepticism and criticism. Assess the validity of the input you receive and
revise your plans accordingly.
DO project confidence and leadership. Some parts of the
diligence process can be ad hoc and some meetings may be
challenging. Investors often see how you work with them as part of judging
a good working relationship. Similarly for you its to understand your investors
and how you see working with them.
DON'T put all your eggs in one basket. Use your network to
help identify prospective investors who are a good fit, and
reach out to as many as possible.
DON'T be defensive, dismissive, arrogant, or dishonest, ever,
under any circumstances.
DON'T run your company based on wishful thinking. Assume
things are not going to go as planned, and assume you are
going to need more money than you think.
DON'T wait until you are almost out of money to raise funds.
Dos & Don’ts