Silicon Valley is the home of the startup company and is a cradle of innovation and creativity. It is also a land of broken dreams for the many startup businesses which have not adequately prepared for successful business operations. For many startups, angel investors finance the business. With appropriate legal protections and sound business advice from an experienced startup attorney, your company can establish a healthy working relationship with angel investors, and lay the groundwork for profitable business operations for years to come.
What is an Angel Investor?
Angel investors – also known as informal investors, private investors, or seed investors – are individuals who provide a company with a significant amount of startup funding in exchange for ownership equity in the business. Angel investors may also accept convertible debt in the company, which can be exchanged for common stock or cash after the company has become financially established. Angel investors may also work in groups or networks to create larger pools of funding.
Angel investor funds differ from venture capital in several key respects. First, venture capital tends to deal with much larger amounts of funding. Second, angel investors often work with businesses in the very early stages of development. Venture capital firms work with businesses that have some establishment or show demonstrable financial promise. Third, the level of involvement varies greatly with an angel investor (who can be involved in the management of the business to whatever degree suits the parties). Venture capital often comes with specific provisions for consultation and management by employees of the venture capital firm.
Important Considerations For Establishing a Healthy Relationship With Angel Investors
Because angel investors have so much discretion over their involvement with a business, it is critical that business owners carefully negotiate and establish the express conditions of the working relationship. Before entering into any agreement with an angel investor, you should consider important aspects of the agreement. Do you want the investor to have a say in the daily (or long-term) management of the business? If so, how much? How long will the investor retain management rights in the business? What financial interest does the investor want to retain in the business? Will that interest allow for sustainable growth of the business? If repayment terms are included, will the business be able to meet them on a reasonable timeline? Are there contingency provisions for buying out the investor in the event that the working relationship breaks down? How will the relationship change and adapt as the business grows?
All of these terms are negotiable. It is important that entrepreneurs and investors seek out a startup attorney to go over the terms and conditions which have been agreed upon so that no unpleasant surprises present themselves later – especially at a time that is critical for the financial health of the business.
Reliable Legal Advice to Start Your Business Profitably
Let the experienced attorneys at Startup Company Counsel help you build a successful business from the ground up. Schedule a consultation today by calling (855) 353-5377, emailing admin@startupcompanycounsel.com, or submitting a request through our online contact form. We will help you with effective strategic financial planning to ensure your business engages in profitable operations for years to come.
