Part Two: Positioning Your Startup to Appeal to Angel Investors
A previous article introduced the concept of reviewing and structuring a startup to appeal to angel investors. That article briefly discussed some of the common points of inspection for the due diligence conducted by an interested angel. This article will build further on the idea, presenting two other important areas of corporate housekeeping that can help improve the attractiveness of a startup.
Once an angel has become interested in a business based on its apparent economic potential, the angel will probe the internal and legal aspects of the business to test whether investing would be a sound decision. During this due diligence review, the angel is examining whether the startup is positioned and prepared to receive an external investment, including the consequent adjustments to ownership and control anticipated by the angel.
This process carries great risk for a startup. The angel is already interested and likely hoping to invest, meaning the due diligence results only serve as a filter to prevent an otherwise worthy businesses from receiving much needed funding. For this reason, careful preparation can be invaluable.
In regulated industries, a key point to make to interested angel investors is that the business is aware of the regulatory environment and has conducted a formal assessment. A savvy company demonstrates this through a written analysis of anticipated regulatory hurdles and the company’s plan to address each one. Having such a plan will greatly increase an investor’s confidence in the capability and long-term viability of the business.
The Food and Drug Administration (FDA) regulates aspects of all stages of biotech product development and marketing. Clinical trials, manufacturing, product approval, and post-approval promotion are all subject to scrutiny and oversight, making regulatory matters onerous even for large and well-known industry players. Angels know this and will expect some degree of preparation before handing over their money.
Another thing the investor’s due diligence will uncover is whether the business has kept a minute book to memorialize corporate meetings and decision making. This may seem like an odd and somewhat minor point of attention, but the investor needs to know that the company has followed all of its legal duties. Failure to comply with basic corporate requirements like maintaining a book of minutes can be a strong sign that the business is unfit for external funding. The minutes may also give an investor some insight into the relative health of the company’s governance that might not be apparent from other sources.
Both of these matters are important parts of the total picture an angel investor sees when looking at a startup for potential investment. Preparing today helps to paint a better picture for the careful eyes of future angels.
For a consultation regarding your individual business issues, please contact San Diego Corporate Law today!