Funding process and investment criteria
Please review our Funding
Process and Investment Criteria
and if you believe your venture meets these criteria we would like to
hear from you. We would consider companies from any industry or US
There is a one-time fee of $400 if invited to present to the full membership meeting.
Before submitting your business plan for our consideration, you must determine if angel capital - and specifically capital from our group - is right is for your company. Please review our investment criteria to evaluate that fit.
Our business plan application is designed to extract the most important details about your business, so our internal review committee can decide if your company should: a) be invited for an initial screening presentation; b) be referred to one of our partners for help in evolving your business plan; or, c) be turned down as unlikely to receive funding from our members. The information is uploaded through our password-protected web-site . You do not need to do that in one sitting since you can save your work and resume it any time later on. The information will remain invisible to us until you decide to publish it. You can also make changes there any time later on. Each month we review 30 or more business plans and select 6-8 prospective candidates to invite to our monthly deal-screening meeting.
After reviewing your business plan, our internal committee will determine if your idea could be of interest to our members. If you succeed, you will be invited to present to the full membership. Be prepared to deliver a ten minute investor presentation and answer questions posed by this group for an additional ten minutes. We usually look at 6-8 presentations during that meeting and devote close to 1 hr on discussing the positive sides and the concerns on each business opportunity. After the meeting each presenter is notified on the results from the investors' discussion and receives feedback. 3-4 of the candidates receive an invitation to present their business opportunity to our full membership.
Presentation To Membership
Following the screening meeting, you will be invited to present to our full membership. Prepare to deliver a 10 minute presentation and address questions for an additional 10 minutes. The objective is to make the people excited just enough to want to learn more about your business - in a subsequent Due Diligence meeting (should there be any interest) you will have the chance to go into the details of your business with no time limit. After all the presentations we excuse the entrepreneurs and have an extensive discussion on each business opportunity. The investors express their interest by filling their contact information on interest sheets, which information is provided to the entrepreneurs for their following up.
The investors who expressed interest during the meeting may form a Due Diligence team and assign a leader to facilitate the process. The entrepreneur is expected to perform an active role in this process, especially if a volunteer to coordinate the Due Diligence has not emerged. During due diligence, interested investors will verify the statements made in your business plan, presentation, and financial projections. They will thoroughly research your team's background and track record. The persistence and timeliness in following up with the investors will also be an important part of the evaluation process.
Term Sheet Negotiation
After successful completion of the due diligence process, interested angel group members will present a term sheet that defines the structure of the investment deal - including type of equity and board of directors representation, using industry standard terms and provisions.
Funding & Beyond
When all parties are satisfied with the terms and language contained in the term sheet, the deal can be executed. But remember, closing the deal is only the beginning of the angel funding process. Now you have access to a network of value-added contacts and experienced professionals who can provide essential guidance for the growth and success of your venture. Adhering to the responsibilities at this stage will enable you to get the most from your angel relationship.
While the merits of each investment will vary, we evaluate your
venture according to the following criteria:
Management team: Business track record and balanced functional skills
We look for teams of high-quality entrepreneurs with a track record of leadership and performance - either in the company's specific industry or in prior entrepreneurial ventures. We also look at your team's passion for and commitment to the new business idea, and your ability to inspire confidence among future stakeholders, including employees, potential customers, and investors. As we will be working together as partners, your team's credibility is essential. In addition, your team must be open to and comfortable with receiving input provided by angel investors.
Market opportunity: $200M+
We invest in solutions that address major problems for significantly large target markets (i.e. a $200+ million market). Your company must demonstrate a strategy to claim significant share of this market (i.e. 20%+). Clear understanding of the user and the customer is required. There are plenty of great business ideas - but not all businesses will generate returns that justify angel investor and venture capital financing. Therefore, providing a solution to a significant problem with a large potential market is essential.
Problem solved: Demonstrated customer pain
It is important to clearly demonstrate that there is a "burning" need in the market that asks for solution. The more urgent is the need the better since most customers are preoccupied with work or have limited budgets, they will be able to satisfy their most pressing needs first. Very often companies raising money have developed a product but have not identified clearly the problem in the marketplace that they are trying to solve. Especially with technology, where one and the same product can have many different applications, it is critical to narrow down the focus to the most urgent market need.
Solution: Breakthrough product, not product enhancements
We prefer to invest in first-of-a-kind new ideas, rather than incremental enhancements to common products and services. Is this a nice-to-have, or a need-to-have product or service? However, we approach highly complex, esoteric technologies with caution. The concept behind the technology must be proven and verifiable. Further, we avoid science projects that don't demonstrate a clear path to commercialization. Any breakthrough innovation must be accompanied by a strong business plan.
Use of proceeds: Actionable plan to reach milestones
Funds must be used to accelerate your company's achievement of key milestones that increase the company's value. We often fund activities that include research and product development, building a sales and marketing infrastructure and hiring key executives.
Growth potential: $50M+ revenue in Y4
We look for companies that can grow quickly and manage the scale necessary to succeed. Your company must demonstrate a plan to generate significant profits beyond the initial product idea. We also require well-conceived financial projections, based on sound assumptions, demonstrating consistent profits and cash flow growth. We look for companies with the potential to generate $50M and more in four years. Exception to that could be the biotech/pharma companies, which are not expected to generate commercial revenue.
Competitive Advantage: Patents, Exclusive Licenses or Channels
Your company must have some proprietary features that distinguish you from potential competitors or provide barriers to entry that prevent other companies from capturing your customers with a similar offering. Attributes that convey competitive advantage include intellectual property protection, exclusive licenses, exclusive marketing and distribution relationships, strong brands, scarce human resources (i.e. knowledge and skills), and access to scarce raw materials.
Fit with expertise within the group
Our group members - all accredited individual investors - have significant executive experience in a variety of fields. One of the benefits of working with angel investors is the active coaching and contact network that such investors can provide. As such, there must be a fit between members of our group and your idea.
Stage: Generating Commercial Revenues or beta version with customers
Total Equity Financing Needs <$5M
Our members are looking to invest in companies with total equity financing needs (including follow-on rounds) <$5M to positive cash flow or acquisition.
Pre-money Valuation <$3M
For wider discussion on the topic, please review the article "Considering Valuation".
Exit strategy: 10X+ in 4 years
Our members typically seek returns of at least ten times their initial investment, within four-five years. This level of return on investment is essential due to the high risk and likelihood of failure among early stage ventures. Thus, a clearly articulated exit strategy - how angel investors will extract such returns - is essential. For example, do you plan to sell the company to an established corporation in your industry? Or will your exit be through subsequent rounds of financing - venture capital or the public markets? Angel investors are not just interested in the strategy you select, but more importantly in the how - the operational strategy that shows specific steps you will take to achieve the exit.
The Massachusetts Small Business Development Center (MSBDC) Network is a free statewide business assistance program representing a three-way partnership between the federal government (SBA), state government (MA Office of Housing and Economic Development) and the academic sector (University of Massachusetts) all working together to support business and entrepreneurship throughout the Commonwealth. Established in 1980, this program pools the resources of government, academia, and the private sector in providing entrepreneurs and business owners with free business advisory services, educational programs, and financing assistance. Virtually all MSBDC counselors have been entrepreneurs or business owners themselves, and most have first-hand experience in seeking funding.
Harbor Angels Network and the UMass Boston MSBDC have forged a unique
partnership in offering this valuable free counseling resource to
entrepreneurs seeking capital from our network of angel investors. We
encourage entrepreneurs to utilize this resource as a means for refining
value propositions, further developing business strategy, and sharpening
presentation skills. For more info on the MSBDC, visit website at
www.sbdc.umb.edu , or call