Verbal agreement for a 300k $ investment from an angel. What next? Advice needed.

[sneakygriff]

Hello Fastlaners,

I'll start with a bit of background. Me and my partner are looking to scale our business to next level, we operate a VR Software development studio and right now create various products for hire.
We work with bigger companies, brands and real estate developers and the like to create small VR products (training software, immersive marketing experiences, architectural visualisation and the like). We have a team of about 15 people in total, which we also work with on a contractual basis depending on needs. In short, we're a service provider, but it all comes down to freelacing with a team behind. At this point, the work was getting quite repetitive and it's not that much different from working for one employer or another.

We decided to look for an investor to support us with switching to a product model. Our background is in the video games industry so we've been discussing for a while about starting our own studio and creating games. All said and done we identified an interesting nieche to start in and we're confident on future outcomes. We put together a solid business plan and pitch, which brings us to present day.

We ended going to a local show on TV similar to Sharktank and pitching there. It all went very well and I shook hands with one of the investors for 300k for 30% of our future business. We're at an idea stage, we have no product or prototype yet, but we do have a portfolio of created experiences and we did create a neat prototype for the show, which helped sell it for sure. All in all I'm very happy with the outcome and it's what we were aiming for, this investment will allow us to launch our first game in the next year.

Which brings me to my present predicament, the agreement is in no way binding right now and we still have due dilligence to follow with our future investor. We want to prepare to obtain the best outcome. This is the first time us as founders are going through this process.

My questions for all experienced fastlaners out there:

• What should we prepare as due dillingence in order to screen the investor on our part? Money's nice but we want to jump into this with the right person as well.
• What else should we prepare to answer or do on our part? We are starting some work as well but we won't be incorporating yet.

TLDR:
Scaling up, received 300k Angel offer on Sharktank like show.
Looking to prepare for upcoming due dilligence stage with the angel.

Thanks in advance!

 

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[Johnny boy]

Call them up

"What do you need from us before moving forward with this deal?"

"I need ____, _____ and _____"

"Okay coming right up".

*Give them whatever statements or hit whatever milestones they want you to hit*

*Send over contract and collect your 300k*

They aren't supposed to run your company. Screen people who work for you or run the company. If you want to act superior when you're the one who needs 300k they'll just laugh and go put their money somewhere else. Especially when you don't even have a product or prototype. I'm surprised they are interested at all.

I have a company that doubles every year, has a 30-40% profit margin, and I can't even find investors for it. I'm in the wrong industry apparently.

 

[MJ DeMarco]

I think you need to establish expectations, things like milestones, what he expects from you as a company, and what you expect from him as an investor. I've heard to many of these types of deals go south... @Likwid24 might have something to add as well.

 

[LordGanon]

Most importantly: Only ink matters. Nothing else. It doesn't matter what they say. Whatever you agree upon, be it the money itself or how they actually influence your business, do not under any circumstances rely on any agreement made verbally. It's in the contract, in the law, or it's void. This will probably save you a lot of trouble and tears.

 

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[sneakygriff]

Call them up

"What do you need from us before moving forward with this deal?"

"I need ____, _____ and _____"

"Okay coming right up".

*Give them whatever statements or hit whatever milestones they want you to hit*

*Send over contract and collect your 300k*

They aren't supposed to run your company. Screen people who work for you or run the company. If you want to act superior when you're the one who needs 300k they'll just laugh and go put their money somewhere else. Especially when you don't even have a product or prototype. I'm surprised they are interested at all.

I have a company that doubles every year, has a 30-40% profit margin, and I can't even find investors for it. I'm in the wrong industry apparently.

Thanks for your reply. I get what you're saying, but he's not just giving us the money, he mentioned being actually interested in the business and taking an active role.

That's why it's a bit more complicated than that and as MJ has pointed out the deal can go south. Trying to maximise chances. It's not a screening process, it's putting ourselves in the best light with our investor.

 

[WestCoast]

This sounds like a great opportunity to be humble, and ASK.

Set the hook, so to speak (while making sure you want to work with this person).
Start a written trail to clarify what they want.
Start to clarify what you will provide.

You're effectively negotiating by continuing the mutual excitement you both had after your pitch - when that person shook your hand.


'We're excited to work with you on this, we wanted to review what you mentioned initially, and discuss if there is room for additional scope (You are helping to establish that $300k is the base amount).'

'We're interested in partners beyond that potentially'

'What role do you think you might be interested in here? Active, semi-active, or maybe silent'


Remember, at the moment, this person has the power of the checkbook, so, it's good to be friendly, but keep things moving forward. Reinforcing that they committed to $300k, but you're open to more. It should help you at least land the $300k.


Once you move further in the discussion, you can get into some more particulars.
But, in this situation, I think of 'setting the hook' first - make sure they are legit and not posturing.
Make sure they are someone you want to work with, and that they are excited.

If so, that should progress naturally into negotiations of some kind. (likely driven by them, assuming they are a professional investor and have done this many times before).


**note, I hate giving advice, and even though I'm in the middle of a dance like this now, I have never done a pitch presentation like you, or been on a tv show or anything, so, I could be missing some parts. But, I've asked for money, and I've bought into companies at that level as a semi-silent partner. I'm doing a negotiation like this now. So, I have experience, just not exactly from your angle. But, hope it helps.

 

[sneakygriff]

Great to see actual investor feedback, this is encouraging thanks @JScott , @WestCoast !

 

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[Likwid24]

The best advice I can give you here from experience is to find a good business lawyer. Have him read through all the fine print of the deal to completely understand what you are getting into. That was my big mistake.

It's and expense now that can save you ten fold later. Worth every cent.

Any you said you're not incorporating yet? That should definitely be a priority. Its very cheap top set up. Get that done asap.

 

[sneakygriff]

The best advice I can give you here from experience is to find a good business lawyer. Have him read through all the fine print of the deal to completely understand what you are getting into. That was my big mistake.

It's and expense now that can save you ten fold later. Worth every cent.

Any you said you're not incorporating yet? That should definitely be a priority. Its very cheap top set up. Get that done asap.

Thanks @Likwid24 ! Yeah, definitely have my lawyer ready to support us with the transaction terms.
The incorporation isn't a priority right now because we'd like to incorporate directly with our angel and I'm betting he has some better ideas about that than us. Local business law is very limited in terms of investments so we might have to incorporate in a different country that's more friendly towards these types of deals.