TRC 034: 4 Must-know due diligence tips before meeting angel investors

Read time: 5 mins

When planning to raise funds from angel investors, it's crucial not to wait until the last minute to address key areas of due diligence.

In this edition of The Rollercoaster, we go into four topics you need to have covered to ensure a smooth fundraising process.

1. Intellectual Property (IP) Ownership

In today's outsourced environment, where third-party services are common for technology development, brand design, and other aspects, it is crucial to ensure all intellectual property is legally owned by your company.

This includes ensuring that all IP created by founders and external providers is assigned to the business.

Remember, even a domain name purchased personally can lead to complications if not properly transferred to your company.

Action Item: Review and secure all IP-related agreements and transfer any personally owned IP to your business.

2. Founder Agreements

Though it might be uncomfortable amongst the excitement of getting going together, setting clear foundational agreements among co-founders is essential.

These agreements should cover equity vesting schedules and the procedures for handling departures or disagreements.

Transparent and formalised founder agreements prevent potential conflicts and assure investors of your team's stability.

You don’t want to not have one in place when you come to need it.

Action Item: Draft and sign a comprehensive agreement that outlines the roles, responsibilities, and equity details of each founder.

3. Ownership and Cap Table Clarity

A clean and well-organised cap table is a significant indicator of your business acumen.

Ensure that all promises of equity and options to current and future team members are documented and clearly reflected in your cap table.

Resolving discrepancies in your cap table should be a priority.

Issues in this area can be a major deterrent to potential investors.

Action Item: Audit your cap table for accuracy and ensure all equity distributions are documented and agreed upon by all parties.

4. Focus

Investors are keen on funding entrepreneurs who are fully committed to their venture.

If you are involved in multiple projects, prioritise and focus on the one that you are seeking investment for.

Experienced investors know that building one great business has a low chance of success.

Trying to build two at the same time is close to impossible.

Action Item: Evaluate your current projects and streamline your efforts to focus on your primary venture.

While these are just a few of the due diligence areas to consider, they are among the most frequently looked at by experienced angels and vital for your success in securing angel investment.

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