Seal the Deal
How angel network operators help their members navigate the investment process
Allow Me to State the Obvious
Angel investors are angel investors because they make angel investments.
Not because they attend pitch events, hang out with startups, or are plugged into the early-stage ecosystem. A new angel investor is only born when their first investment clears the bank.
Far less clear, however, is the role the angel network operator ought to play in helping their members take the final steps to get a deal across the finish line.
Let’s get into it.
The Observer Express
Don’t have time to read the entire post right now? No worries, here are the main points:
A deal is not done until the paperwork has been signed and funds transferred.
Some groups support the investment process using a Network-Driven approach. They leverage SPVs, sidecar funds, and other formal mechanisms that give the network more control and make life simple for members. However, many groups are Self-Driven and empower their members to handle the details.
In either case, there are some simple things that any angel network can provide to its membership that add tremendous value, such as recommended resources, legal support, and leadership’s availability.
Are We Done Here?
Two weeks ago, I introduced the fictional startup called “Rocketship Inc.,” which received substantial interest. Let’s assume that the company has continued to turn heads. We’ve come alongside the members and helped answer their outstanding questions, a solid deal memo was just published, and the company has secured enough soft commitments from your members to fill their round.
Are we done?
No.
Bring On the Paperwork
This is the fun part of the process where any handshake agreements and verbal commitments are put to paper. The main document of interest is the term sheet, which serves as (typically) a non-binding agreement outlining the “terms” of a deal. It specifies the vehicle (equity, SAFE, etc.), investment amount, valuation, and other important aspects such as liquidation preferences, conversion rights, and more. This document is usually negotiated and finalized by the “lead investor,” who tends to write the largest check for the round and often receives a board seat or other special benefits in return. This is referred to as “setting the terms” for a deal.
My experience has shown that most of the time, angels do not lead. Some angel groups prefer to coordinate and write larger collective checks, but most do not. Therefore we’ll assume that the terms for Rocketship Inc. have already been set by a lead, and our angels must simply decide whether to accept or reject these terms.
Once terms are set, the legal team for either the lead investor or the startup (depending on what the term sheet stipulates) will draw up the complete document package for the deal. If the deal is a convertible instrument such as a SAFE note or Convertible Debt, things are fairly straightforward, but these packets can become somewhat cumbersome when it’s a priced round.
What’s the operator’s role in all this?
Angel Ops Step 4: Close, Supporting Job #3: Support Investment Process
As a quick refresher, Angel Ops, which I introduced in this post, seeks to map an answer to the following question: What does the process at a world-class angel network look like? Angel Ops is focused on the backend process of running deals and groups the workflow into 5 core steps. In last week’s article, I introduced the second job within the Close step: Create Deal Documentation, which involves developing deal memos to summarize a startup and the opportunity behind it in a concise format. The overall objective of this stage is to help members decide whether or not to invest, and (when the decision is affirmative) that decision culminates in a commitment to do so.
Step 4: Close
Job: Help members make a final decision on whether or not to invest.
Progressive Outcome: Commit - Members invest.
Within each core step, there are 3 “supporting” jobs-to-be-done that contribute to the primary job. This week, we’ll explore the final supporting job within the fourth step: Support Investment Process.
The Spectrum of Control
Like every other job in the Angel Ops process, I’ve observed various levels of involvement in this final closing process. However, they tend to fall on a spectrum from “Self-Driven” to “Network-Driven,” just like the various approaches to helping members answer questions that I introduced a few weeks ago.
Self-Driven
In my experience, most networks fall closer to this side of the spectrum. They empower their members to engage directly with founders. In these scenarios, the network plays a more facilitating role, and the actual investment is made directly by the members.
Network-Driven
Some networks offer their members access to formal investment mechanisms like Special Purpose Vehicles (SPVs), sidecar funds, or other creative structures to deploy their capital. These mechanisms allow the network to aggregate member investments and exercise more control over the terms and negotiations. In such cases, the network becomes the formal investor in the startup and is much more involved in the process.
In either case, there are some simple things that any angel network can provide to its membership that add tremendous value at this stage.
Here are Some Simple Support Mechanisms Any Group Can Implement
Recommended Resources
Maintaining a list of recommended resources can be incredibly helpful for members who are looking to learn more about the ins and outs of the closing process. There are some truly fantastic books, websites, and videos online. Need a starting point? Here’s a link to our resources page.
Legal Support
Offering access to legal experts who can review investment agreements, contracts, and other legal documents can save members the headache of locating their own lawyer with the necessary expertise.
Deal Room Platforms
Some networks use secure online deal room platforms where members can access all relevant investment documents in one place. Very helpful.
Educational Workshops
Host workshops or webinars on the closing process, term sheet negotiations, or other relevant topics to help members successfully navigate the investment process.Mentorship
Connect newer members with more experienced angel investors who can offer guidance and share their expertise.
Leadership Availability
Being present for our members is a massive resource. Simply knowing there’s someone who understands and who is in their corner can be a great benefit of membership in a network. More questions come up? Help answer them. A member gets stuck on a particular point of negotiation? Be present and help them work through it.
Final Thoughts
An angel network operator’s obligation doesn’t end after the deal memo gets written. Whether a network-driven or self-driven process is chosen, a deal isn’t closed until it’s closed. By understanding the process, selecting the optimal positioning on the spectrum of control, and supplying members with helpful resources, operators can equip their members to close deals well.
What do you think?
How does your angel community go about supporting members through the investment process?
Weekly Observations: 3 Lessons Learned
Inventions require at least a 2-3x improvement to be commercially viable.🧪
This week I spoke with an inventor working on a new battery chemistry for the military, and I also spoke with a licensing manager about the process of working with large corporations to purchase and scale new inventions. It’s a complicated process, and the licensing manager mentioned that a 2-3x improvement over the status quo is typically a baseline requirement for a deal to get done.
Humans are unpredictable.🤷♂️
This week one of our clients hosted their usual monthly pitch event. We recently implemented a “voting” system where their members can vote on which deals they’d like to see present. As a result, going into the meeting I felt very confident about which deals the members would be most interested in. I was completely wrong. Lesson learned: humans are unpredictable.
A $12 book can deliver $100K+ in value if read at the right time.📖
PitchFact is growing. It’s a great problem to have, but a problem to solve nonetheless. Thanks to a friend’s recommendation, this week I read most of Who by Geoff Smart and Randy Street. It includes a simple and VERY helpful framework for hiring “A Players” consistently and repeatably. A few hours spent reading, digesting, and applying the concepts from this book left me feeling like I just saved my company from hundreds of thousands of dollars in hiring mistakes. I’d say the $12 and 2 hours I spent to buy and read the book was a fantastic investment.
Speaking of growth - who are the most talented people you know that I should hire?
Thanks for reading, have a great week.
-Andrew
If you enjoyed this post, please share it with a friend, colleague, or anyone else who may benefit.
P.S. - I recently finished creating The Angel Network Toolkit: 90 Resources for Cultivating a Thriving Community of Pre-Series B Investors, and I’m sharing it with anyone who refers a friend.
How did I do this week?
About Me
I cultivate flourishing.
I'm also the CEO of PitchFact, where we help angel networks conduct efficient and collaborative diligence. I'm a proud husband, aspiring father, and grateful friend. My love languages include brisket, bourbon, and espresso.