Situation: A start-up company needs to raise cash to fund the achievement of key milestones. The founders have evaluated private equity, angel, and venture capital financing options. They believe that at their stage of development an angel is the best source of funds. What guidance can the group offer for negotiating with a private financier? How do you evaluate financing options?

Advice from the CEOs:

• The important questions to answer are: who is the angel, what is the angel’s motivation, and what does the angel bring to the table?
• What is the angel bringing to the table?
  • Is it money and connections? Who and how many people will be involved?
  • Do these individuals bring the expertise to take business to the next level and beyond?
• Identify the strengths and weaknesses of the angel’s organization. Ask about other companies that the angel has financed. Talk to those companies about their experience with the angel.
• Ask how long the angel plans to stay connected to the company.
  • Is the angel committed for the long-term or looking for a quick profit or exit and sale?
  • What happens after the angel leaves?
• Validate statements made by and the experience of the angel.
  • How may IPOs has the individual or group been involved in?
  • What existing contacts do they have with additional potential funders or buyers?
  • Vet all of the claims and statements made by the angel.
• Evaluate equity vs. cash funding and the prospects and terms that accompany future funding rounds.
• What is the company’s long-term strategy?
  • Do the founders want to stay the course long-term or is it sale of the company to another entity?

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