Providing Startup Financing Solutions Since 2001

Angel Investors: The Deal-Killers

Have you experienced the frustration of dealing with a self-professed “interested” angel investor who you just cannot close no matter how hard you try or how many months go by? If you have, read on.

After writing last month about angel investment “Deal-Killers,” I received a slew of emails and calls from frustrated and angry entrepreneurs unable to close deals with angel investors. Many of them had invested more than a few months talking to investors who had repeatedly expressed a commitment to invest. Yet every attempt at closing the deal had ended in frustration. Some of the angel investors finally expressed a reluctance to invest at this time while others just dragged their heels and avoided the subject. Either way, the result is the same. The frustrated entrepreneur can’t get the money he or she desperately needs for their company.

As pointed out earlier, the resistance often stems from the angel investor’s uncertainty over how they will get their money back plus any profit that may have accrued. To be honest, their fears are real. Minority shareholders in a small private company (i.e., a chronically cash-strapped one) are at the mercy of the majority who can easily find a hundred better uses for limited capital than buying out investors–especially the passive variety. Both sides always have a convincing rationale. The minority investor feels that it’s time he was finally rewarded for taking a gamble on the company at an early stage. Meanwhile the majority are convinced that if they just hold onto that money for another six or twelve months, it will allow the company to hit a new plateau which will insure its long-term success.

Who is right? Probably both sides … to a degree.

With this problem in mind, I have recommend a little-known tool for raising money which addresses the concerns that all angel investors have about their exit strategy. Indeed, it tackles this obstacle head on. Might I even say that it “demolishes it”?

The Revenue Royalty Certificate (“RRC”)

Ladies and gentlemen, behold a hybrid financing tool with remarkable powers for closing investors. I speak of the Revenue Royalty Certificate (sometimes called the Revenue Sharing Agreement).

Here’s why it’s such a great tool for the entrepreneur to use. Being a hybrid it’s initially set up as a loan to the company. The loan payments are scheduled to commence on a certain date. This is usually six to twelve months after the loan is made in order to give the company time to grow. After that date the payments are made out of net sales. So for example, if the revenue royalty is 2% that means that every month that percentage is paid back to the investors. (These payments are made only after the company has actually received payment from its customers.They are not made on accounts receivable.) It’s a hybrid instrument because it normally comes with an equity kicker. This means that once the investor has gotten back his principal plus interest, he can also hold onto a few percentage points of equity. This is usually in the two to five percent range. If the company turns into a big hit that equity will be equivalent to a major lottery winning for the investor. If the company isn’t a big success at least the investor has recovered his investment plus interest.

Closing Angel Investors With RRCs

This product consists of a 37 page book in pdf and an accompanying spreadsheet in Excel. Contained within the package is all the knowledge you need to be able to utilize an innovative financing instrument to close the deal with angel investors. The instrument, called a Revenue Royalty Certificate (RRC), is a loan structure which clearly demonstrates to the investor how and when they will recover both their principal and profit while also receiving an equity stake in the company.

However, the RRC is not just about benefits for the investor. This instruments also offers substantial benefits to the entrepreneur. I am referring to freedom and autonomy here. With an RRC, the investor is unlikely to interfere with your management style as long as the payments are being made on time.The RRC is a win-win.

There are a few more bonus lessons contained within which reveal how sophisticated entrepreneurs select their target investors.

Download your copy of How Deal-makers Close Investors today.

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This product also teaches you how to think like a deal-maker. This is sadly a skill few rookie entrepreneurs have. Don’t lose anymore time spinning your wheels.

Stop beating your head against the wall and discover how to close a deal like a deal-maker.