Best practice for Founding Angels

After analysis of Founding Angels as early stage technology investment specialists, the definition of the best practice process provides a framework to control risk and to manage the investment. The process is divided into different phases.

Phase 1 = Project sourcing: Project opportunities are sourced and evaluated to identify those which have the highest potential and the best fit

Phase 2 = Foundation: A new company is formed and an agreement is signed with the technology partner (e.g. universities) providing rights regarding the relevant IP and other resources

Phase 3 = Company structures: Effective and efficient company structures are built-up including further R&D work (as a rule done together with the technology partner in the starting phase)

Phase 4 = Business development: Business development is established to find co-operation partnersand to generate first revenues

Phase 5 = Exit strategy: An exit strategy is developed and executed to sell the company or its assets within around 5 years to established partners

Practise shows that a number of important points have to be considered with the Founding Angels business model.

• All founders including the Founding Angels should receive the same equity share. A discussion as to whether scientific expertise or commercial expertise is worth more leads inevitably to a failing of the project.
• Founding Angels like all other founders should not receive any money (e.g. salary) from the start-up company until the company reaches break-even.
• Founding Angels should be in a position to give cash injections, if necessary, which are to be seen as shareholder loans, so as not to change the ownership structure.
• Founding Angels usually take on the role as interim CEO/CFO, but should hand over the position to a full-time CEO/CFO as soon as possible.
• The impression must not be formed that the Founding Angels are in search of a long-term position or are looking to keep their heads above water financially through the start-ups. Should this be the impression then the chance of quickly finding investors is very small.