Inside Secrets to Angel Investing, Chapter 2 Excerpt

The Investment Cycle – from Introduction to Marriage

Congratulations on your continuing to explore Angel Investing as a strategic step toward significant wealth creation! This excerpt from chapter 2 will provide you with excellent information on a full range of topics you’ll want to know more about as you begin your education in this exciting arena.  

In this chapter, you’ll learn the steps toward making a decision to invest in a private company. We light-heartedly compare this process to that of choosing a mate for marriage because symbolically, these processes have many similarities: the introduction, the commitment of time (The First Date), the due diligence and the negotiation phase (The Courtship), and finally, the consummation of the investment (The Marriage). Consider this chapter to be your “chaperone” throughout the entire process.

Introduction

An introduction to your potential investment “mate” can be made via many different sources: friends and family, several types of “intermediaries” and/or alternative sources, each of which has its pluses and minuses..

For example, the investors most likely to provide seed capital have some connection with the founders or key management of the company. Yet no matter how well you know these people, you’ll need to consider some objective factors in your decision to invest in the company.

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Intermediaries often provide a critical role in the introduction of investors to private equity investment opportunity. Depending on their role as intermediary, they will have performed some initial screening and valuation of the deal. In the full chapter, we explore what you need to know about “intermediaries” and alternative sources who add value to the funding process. These could be lawyers, consultants, and other professional service providers including Investment Bankers and Registered Dealer/Brokers (D/B), “incubators” and “finders”. You’ll learn their roles, their expectations, the names of the big players in this category, the SEC regulations, and the pros and cons regarding such entities. This information will help you understand who you’re working with and how they’ll be working with you as an Angel Investor.

As you progress in your commitment to private equity investment, it may make sense to form your own team to “find” and evaluate deals for you. Chapter 2 tells you how to develop and work with your team, where to find a team that’s already organized, and where to go to gain exposure to many deals, opportunities and contacts. As you go through the book, we will continue to explore how you establish your Investment Model and how you form your team.

The First Date

You have received the company’s information; it has been screened by your intermediary source and filtered through your Investment Model and the company meets your basic requirements. What is the next step? Answer: The First Date. The goal of this meeting is to answer your questions, such as the eleven excellent questions that are listed in this chapter – a great foundation from which to start. Answers to these questions can reveal how the founders and management team thinks, and its general approach to business and money management.

After The First Date, you must make the next decision: “Is it worthwhile to spend another 40 to 120 hours evaluating, investigating and negotiating the terms of the investment?” If so, you may begin The Courtship to validate your preliminary conclusion that this company can produce the return on your investment that you require.

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Courtship

During Courtship, you start to get to know the management team and their business model beyond the image portrayed in the business plan and the investor presentation.  In the book we explain who to talk to, the approach you need to take, and what you’ll need to do to complete the due diligence checklist, which is included as a link.

The Courtship ends when you have completed your evaluation and due diligence and decided to go forward. If the company has established a Private Placement Memorandum, as part of their Reg D offering, then you will decide to participate in the investment under those terms. If you are investing as a company or other legal entity, and can purchase or syndicate to purchase the entire offering, then you can negotiate a term sheet that contains clauses and protections you desire. You may issue a letter of intent with proposed terms if the terms are negotiable. Depending on the structure of the Direct Offering or the Private Placement Memorandum, the terms may be set. Once all the terms are agreed to by both parties, then you move to “The Marriage” part of the process.

Marriage

The closing can be compared to a wedding ceremony. Just as you would bring your rings to this event, Chapter 2 tells you what you’ll need to bring to close this deal. You’ll also learn about your role in the relationship as an advisor, an active member of management, or a passive investor. As in any relationship, you want to start off on the right foot, so you should be clear on the time commitments and expectations. You’ll also learn the two ways that an investor can do more harm than good while working with management – you’ll want to be certain to avoid these mistakes.

Closing

Congratulations! Hopefully, your courtship leads to a happy marriage in which your time and effort earns you a healthy return on your investment. If your investment came in the form of a loan or a guarantee against a loan(covered in Chapter 5:When Is An Angel Investor Really A Bank?”), that return comes when the loan is paid off. During your “marriage,” other challenges and opportunities may arise. For example, you may have an option to be bought out by a later investor..  Then, in Chapter 4, The Business LifeCycle, and the types of capital needed at various stages of the Business Lifecycle, to continue to fund your “marriage” explored in more depth.

To learn more about how to buy Inside Secrets to Angel Investing, plus the 6 Bonuses that are included in your purchase, click here.

We hope that by educating you about the process and equipping you with an Investment Model, it will make your investment sounder, but there are no guarantees. That is the challenge and the thrill of private equity investing!

Thanks,

Karen Rands
Compassionate Capitalist
Managing Director of Kugarand Capital Holdings and subsidiaries
Membership Director for National Network of Angel Investors.

You’ll continue to receive informative emails with brief descriptions ofthe concepts explored in the “Inside Secrets to Angel Investing” and other relevant information, articles, and podcasts every few days. We hope you find this information valuable and will share it with friends.

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About The Author

karen-rands-bioKaren Rands is the founder of Kugarand Capital Holdings, LLC (www.kugarandholdings.com). For over a decade, she has taught entrepreneurs how to attract capital from investors and lenders, and high net worth men and women how to invest in early stage private companies. She has provided opportunities for qualified companies to meet and court qualified investors leading to the investment of over $35,000,000, growth of dozens of companies and the creation of hundreds of jobs. Through that she has interviewed, analyzed and observed and then applied that knowledge in ebooks, podcasts and blog reports. Now she is taking it to a whole new level by building a national network of investors that want be a part of the expected seismic shift in investment in the public markets to the private markets. High net worth men and women want their investments to be relevant and rewarding. Investing in an aspiring entrepreneur’s endeavor to help bring innovation to the market and create jobs, while creating wealth, just makes sense. It’s the win-win of investing. To learn more about Karen Rands, visit her bio page.

Disclaimer: Every effort has been made to accurately represent our products, their sources and their potential when applied by the student. Any information offered regarding actual earnings or examples of actual results can be verified upon request or the source can be made available. Purchasing equity in private companies is an extremely risky business. The information provided during the online orientation to Angel Investing is drawn from personal experience with Angel Investors and companies seeking funding, and from recognized authors and columnists, and is not intended to represent or guarantee that anyone will achieve the same or similar results. Each individual’s success depends on his or her background, dedication, desire and motivation. As with any business endeavor, there is an inherent risk of loss of capital and there is no guarantee that you will earn a return on your investment.

To learn more about how to buy Inside Secrets to Angel Investing, plus the 6 Bonuses that are included in your purchase, click here.

“Inside Secrets to Angel Investing” is copyright protected and the information held within this website and the derivative content of the electronic courses are the sole property of Kugarand Holdings, LLC. You may not distribute it for financial gain without express approval from Kugarand Holdings, LLC. You may use the online material for educational purposes and link this and the Kugarand Holdings website to your website if you do not modify any of the content or credits.

©2005 Karen Rands & Kugarand Capital Holdings, LLC