Business angels’ best practices for good governance
The business angel activity and its success are not innate. BA, entrepreneurs, discover the advice of seasoned investors to avoid falling into the traps of seed capital. Discover 8 tips for a good governance of your investments.
bpifrance, France Digitale, France Angels, The Galion and Paris Business Angels have taken the initiative to share 9 sheets describing and explaining the workings of the Business Angel profession. Point by point and thanks to the experiences of Business Angels recognized in the French entrepreneurial ecosystem, we will analyse together the pitfalls to be avoided and the best practices, in order to allow you to contribute positively to the progress of the company in which you are going to invest. In this sheet: 8 tips for good governance and reporting.
The governance of a startup is crucial for its development and for business angels to follow their investment. Depending on the degree of maturity of the startup (early stage, seed, Series A …), the number and type of investors (business angels, venture capital funds …), governance can be organised differently.
The Board is not only a time for reporting but, in reality, it is also and above all a time for making decisions and problem solving in the face of the obstacles that a startup may encounter.
Early stage governance (without venture capital funds)
To ensure efficient decision-making during the board meeting, it is necessary that business angels and investors have a constant view of the startup’s metrics. As a result, monthly reporting to investors is a good practice, and a good discipline for the entrepreneur.
Depending on the level of experience and maturity of the entrepreneurs, the stage of development of the company, the development of reporting tools can be laborious. From the outset, make sure you structure the process and respect it over time. If need be, do not hesitate to get your hands in the dirt to build together, even before the first committee, the basis of the reporting.
The reporting must contain 3 documents:
- The cash flow plan (at least 9 months ahead) in order to anticipate future financing needs.
- The sales pipeline: Be attentive to developments (stages, decision due dates) and check the planned actions (explanation of bottlenecks, identification of decision-makers, positioning/competition, prices).
- Key decision indicators or KPIs such as: marketing (KPIs, medium-term actions and objectives), sales (progress over the last few months, measures taken or to be taken for future objectives), product or service (definition, manufacturing, problems, measures), logistics (operations, measures, costs, problems), R&D (progress date, plan update, objectives for the coming months), financial results (cash flow, comparison of budget and actual, projections), HR (hiring decisions in their entirety and hiring of key personnel), etc.
Business angels also have the role in the governance of the startup to be a lever of action to accompany the entrepreneur in a potential fund raising and to put him in contact with venture capital investment funds. The business angel therefore plays a strategic role for entrepreneurs at the time of the startup’s growth: the investment is financial, but also human. It is a player in the strategy and deployment of the startup, but also in its future support.
Governance with an investment fund
Governance with a venture capital investment fund appears more structured, with accurate reporting schemes. In other words, the main investment fund is the leader of the governance organization, and also allows the Business Angels to bring more human time to the entrepreneur. Close relationships with the investment funds promote the alignment of interest for the Business Angels, especially for consensus building. A small board promotes communication between its members and increases its efficiency.
The presentation of metrics to investors is structured in a good governance organization as follows:
- Monitoring: Structured presentation that presents the results.
- Problem Solving: Points of vigilance in financial, strategic and commercial terms and providing investors with solutions to be implemented.
- Decision Making : Investors (Business Angels and investment funds), even minority investors, are the keystone to consolidate or adapt the startup’s strategy and record the points of doubt.
- Experience: The strength of a Business Angel lies in his business experience (sector of activity or technical) and his points of contact (address book). He will be able to bring a fresh look on the evolution of the organization and give advice on key recruitments for example.
The post-round seed board, is often made up of an odd number of people (to decide during the votes) in order to the different parties represented:
- The founders (1 to 2 seats)
- The investors of the seed round (1 to 2 seats including 1 representative of the fund if there is one, and a representative of the Business Angels)
- An independent board member (often from the industry)
The board meets every 1 to 2 months depending on the stage of progress and the needs of the company to make an update on :
- The KPIs (Key Performance Indicators) which allow to follow the progress of the startup.
- Cash consumption and remaining available runway
- Hirings made / open positions
- Product progress / feedback
- The overall strategy
- The Commercial Pipeline
- Problems / topics to be dealt with
Please note that it is important to prepare a board deck for the meeting and send it to the board at least 48 hours in advance so that the information can be integrated for a useful exchange.
It is also key to take notes and to ensure a follow up/board follow-up in order to capitalize from one month to the next.
Above all, the board remains a place of exchange that allows us to soundly address the strategic issues of the moment.
The business angel who takes the responsibility of sitting on the board must have the bandwidth to really help the company. This often requires a lot of information to help the founders make their choice in an informed manner and with the necessary hindsight. Knowing the market is not mandatory but remains an advantage. Sharing one’s network can be key to the progress of the project in the months following the first raising.