The Frontier Angel Fund Application Process

November 23 2010 No Commented

The following article appeared in the May 2010 issue of the Flathead Business Journal, but is no longer available online.

As I revealed in last month’s column, I am an active member of the Frontier Angel Fund (Frontier), formed in 2006 to provide mentoring and capital to startup companies in northwest Montana, elsewhere in Montana and the inland Pacific Northwest.  For more on Frontier, check our website at www.frontierangels.com.  Here is how the funding process works at Frontier:

Entrepreneurs will find a great introduction to angel financing by clicking on “For Entrepreneurs” on the Frontier website (link above).  We suggest you check out our Investment Criteria to make sure we are a good match.  We don’t tend to invest in company outside these parameters.

You will also notice application buttons for New Entrepreneurs and Returning Entrepreneurs in this section of our website.  The AngelSoft deal flow management tool we use on this website allows entrepreneurs to complete our funding application in several sessions, if they wish.  It is password protected and cannot be viewed by anyone without your password until you submit the application to Frontier.

The application is designed to provide our Screening Committee with all the information they require to make a decision on moving your company forward in the process.  It is advised that entrepreneurs provide complete information in all aspects of the business, as requested therein.  Once your application is submitted, it will be automatically distributed to our Screening Committee, several Frontier members qualified to evaluate the opportunity you have described.

If approved by the Screening Committee, entrepreneurs are contacted to invite them to present at our next meeting (the Frontier group meets bimonthly).  Entrepreneur presentations to our membership; should cover the following topics:

Market Need and Business Model — Most Important!
Industry and Market Overview
Product or Service Overview
Technology and Intellectual Property (Current & Future)
Competition
Competitive Advantages
Strategic Partners
Management Team
Benchmarks for Growth or Additional Funding
Funding Sought, Valuation, Use of Funds, Comparables
Financial Projections

We encourage entrepreneurs to use a PowerPoint presentation with 12-15 slides covering the topics (above).  Plan on 15 minutes for the presentation, followed by 15 minutes of questions from our membership.  Use  a large font (type size) with as few words per slide as is feasible.

If our members like the deal, Frontier will establish a due diligence committee for an in depth study of the entrepreneur’s business proposition.  Four to six of our members will engage with the entrepreneur and the company to validate the investment opportunity.  This includes background checks on the entrepreneur and management team, verifying the size of the opportunity, validating the intellectual property, confirming the proforma financial statements, etc.   Our due diligence team will invest 100 hours over a period of six weeks, or so, on appraising the business.  The team will then make an up or down recommendation to the membership regarding this investment.

During the due diligence process, we will also be negotiating a term sheet with the entrepreneur, defining the structure of the investment, the make-up of the board of directors and many other terms and conditions common to investing in startup companies.

The Frontier membership will then vote on investing in the company, usually in the amount of $100,000 to $200,000.  If the vote is favorable, the company is then free to solicit our membership for additional funding from their personal accounts.  These side investments often equal or exceed the investment by the Fund in companies.

Of course, funding the company is only the beginning of our relationship.  Frontier usually has a representative on the Board of Directors of portfolio companies who is responsible for mentoring the management team and reporting on progress to our members.

The investment process usually takes four months or more to complete, from application submission to closing.

And, in case you are wondering, the Frontier process is quite similar to the investment process of the other 300 angel groups around the country.