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Monday 24 July 2017

Anatomy of an Angel Investing Pitch session and meeting: Part III The Devil in the detail: Due diligence (documentation and legals)

In terms of garnering immediate interest to engage investors in the due diligence leading to placement of actual funds (after the documentation is complete, Shareholder Agreements signed etc), there is some element of a binary process going on that isn't always justified by the eventual end result at exit. The hot ticket business which has 80% of the room signed up to and quickly mentally filling its allocation and (on the other side) the 'jane-no-mates' scrabbling for interest may be following on direct from one another in the running order. 

The beginning of what can be an incredibly searching due diligence process begins there and then in the pitching room. First questions come direct to the founder, immediately after the pitch itself: Where are your revenue projections from, why such a high valuation, who in your team is the marketer? 

This process continues amongst the investors with the business founder and/or team members no longer in the room (perhaps waiting and wondering next door), as the degree of interest in the room and immediate issues are rapidly unveiled amongst the potential investor group and therefore quite quickly apparent to all and sundry. At that point one investor may likely be asked or offer (based on previous sectoral experience or investment) to be a co-ordinator for the round or rather lead 'cat-herder' of what can often be a geographically dispersed and very busy group of angel investors.

If it's a follow-on round with the group, including previous investors, the status of existing group investors in the business and their opinion can be highly significant in coalescing and heightening collective interest in the round, at least if they remain positive about the business's trajectory and especially if they are also themselves following on again in this round.

After all is said and done, expressions of immediate interest to join the due diligence process in subsequent days, weeks and sometimes months via group communications over Doodle, Skype, or PowWowNow are logged and everyone can get down to the remainder of the evening's fun of networking, swapping business and investing war stories, recent holiday experiences and all the other subjects that like-minded, and entrepreneurial folks on both sides of the investing equation as investors or early stage founders and co-founders love to share with one another. 

Many cross the divide either way on multiple occasions.

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Sunday 2 July 2017

Anatomy of an Angel Investing Pitch session and meeting: Part II The heart of the matter - The business pitches and questions

After the introductory niceties, and required disclaimers such as PS 13/3 statements on HNWI etc or perhaps news of recent rounds, exits and so on, the drama of the pitch and Q&A sessions begins, perhaps the most familiar to external onlookers or newbies.. Up to that point, the businesses have often not had contact on the evening with the syndicate members, perhaps waiting in an adjacent room to get their chance to pitch, to preserve a level playing field. 

It is often under-appreciated how much it takes even to get to pitch to many syndicates. Seeding calls, checklists from the syndicates for staff, and the work to produce a business summary or seeking a formal business plan may whittle as many as 100 potential pitching businesses down to just three-five to present, and even then there are no guarantees. They may have as little as 10 minutes to present, with 5 minutes for questions, although I've seen even shorter pitches in some large "website to live" events with 10-12 businesses.
If you are pitching with an especially strong cohort you may shine a little less brightly than some, or if first up and followed by very strong businesses further along in the progress to profitability ( its rare to see one without at least 12-18 months of revenue at least) suffer the same fate. Some may be relatively better defined or pitched by their respective founders.

In those cases, those angels who showed early interest for due diligence may quickly be distracted by even more alluring prospects of early multiple exits, recent comparable IPOs or such like. Angels have a degree of herd mentality too, or may tend to be influenced by a more experienced angel who has the luxury of an already diversified portfolio or one which is yielding exits as well as more investing opportunities. A little judicious use of the 'scarcity' lever works with even these sophisticated individuals if there is a hint with rapidly growing business that this will be the last angel round before a VC process next time, or that there is a capped investment level at this valuation.

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