William Eigner, Partner, Procopio, Cory, Hargreaves & Savitch LLP
You’ve done everything you should to interest angel investors in your hot company, but how do you get them to pull the trigger and invest? You already know what it takes to attract investor interest: build a great product for a large market, recruit a great team and set up a blue-ribbon board of advisers, file patent applications, sign up customers and partners, showcase all of the above on a good website and investor PowerPoint and prepare reasonable offering documents. You even have had great meetings with potential investors who say they want to invest, but it’s taking forever for the investors to send in the checks and wire the funds. What do you do? Here are three ways to get angel investors to move forward faster:
1. Create Competition for the Investment Slots and a Sense of Urgency.
This is easier said than done, but here are some techniques to consider:
– Don’t be overly persistent or seem overanxious.
– Announce a deadline, but allow for flexibility; don’t have an open-ended offering.
– Have a similar offering or offering range, but allow for the board to expand the size of the raise.
– Have the investor (ideally a well-respeced investor in the sector) lined up before you officially announce the raise. This implies that the terms are set and could short-circuit unwanted negotiation.
– Make sure your Series A raise is close to occurring and communicate that the current round investors will get much better terms than those who wait for the Series A. ait for the Series A.
2. Consider Building in Incentives for Early Investors.
This can cause securities law problems, cap table complications and other headaches, but these features can sometimes be effective:
– Issue warrent terms that are less generous over time (e.g., 20% warrant coverage if you purchase by December 31, 15% if by January 31, 10% if by February 28).
– Provide for increasing stock pricing to encourage early purchasing.
3. Make the Documents Simple to Sign, (but Don’t Skimp on Disclosure).
You need to disclose all material information to potential investors in a fair and reasonable way, but you’re not required to make the process unduly complex.
– In your email to the interested investors, include separate signature pages in PDF format and attach them first.
– Attach the rest of the documents in double-sided format (in case they’re printed), so as not ot overwhelm the investors.
[Photo credit: Lending Memo]
About the Author
William Eigner is a partner on the Business/Technology Team of Procopio, Cory, Hargreaves & Savitch LLP, a 140-attorney firm located in San Diego and Menlo Park, California and Austin, Texas. He has won numerous awards for his work in corporate law and mergers and acquisitions and is an authority on boards of advisers. He can be reached at (619) 515-3210 or at firstname.lastname@example.org. His biography can be found at http://www.procopio.com/attorneys/william-w-eigner.