Agreement with Angel Investor: Tips for Small Businesses
Business growth is a key objective for small business owners. However, to achieve this objective, you may need to get financial support from investors. Angel investors are a great option for small businesses that are looking for funding. But before you sign any agreement with an angel investor, it`s essential to fully understand the terms and conditions of the investment. In this article, we will discuss the key points to consider when making an agreement with an angel investor.
1. Clear Understanding of the Terms
The first step is to make sure that you have a clear understanding of the terms of the investment. Make sure you ask your angel investor for clarification on any terms that you don`t understand. Some key terms that you should be clear on include the number of shares being sold, the amount of money being invested, and the type of shares being issued.
2. Importance of Legal Advice
Once you have a clear understanding of the terms, it is strongly recommended that you seek legal advice before signing the agreement. Legal advice can help you avoid any potential legal issues that may arise in the future. A lawyer can also help you understand the implications of the terms and how they will affect your business in the long run.
3. Angel Investor`s Involvement
It`s important to understand the level of involvement your angel investor will have in your business. Some angel investors prefer to be actively involved in the business, while others prefer to take a more hands-off approach. This should be clearly outlined in the agreement. Make sure that you are comfortable with the level of involvement your angel investor is expecting.
4. Exit Strategy
An exit strategy is an essential component of an agreement with an angel investor. This outlines how the investor will get their money back and how they will exit the investment. The exit strategy can include options like selling the company, an initial public offering (IPO), or selling the investor`s shares back to the company. Make sure that the exit strategy is clear, and you understand the terms.
5. Control of the Business
Angel investors often request some form of control over the business. This can include a seat on the board of directors or the ability to veto certain decisions. Make sure you understand the level of control the angel investor is requesting and are comfortable with it. If you`re not, negotiate to reach an agreement that works for both parties.
In conclusion, an agreement with an angel investor is a significant step for any small business. It`s essential to make sure that all terms and conditions are clear and that you fully understand them. Seek legal advice if necessary and negotiate to reach an agreement that works for both parties. With careful planning and negotiation, an agreement with an angel investor can be a great opportunity for small businesses to grow and succeed.