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How is angel funding usually spent?

HI, i am just curious, when company receives angel funding, how are those funds gets spent?
For example, what percentage goes towards development? towards sales? towards salary? Anyone has dealt with this before?

6 Replies

Patrick Hidalgo
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Patrick Hidalgo Entrepreneur • Advisor
Financial industry executive who is now writing software.
Most angels would require some sort of plan of how the funds were to be spent over some time period before writing a check. These act as milestones so that investors can see if the company is doing what they said what they would do and if not, why not. That is a pretty generic answer, but they are going to leave it up to the company to decide what to do with the money. They just want to see a justifiable plan.
Digvijay Madamae, MBA, MFM
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Financial Analytics/Research | SME Consulting | Entrepreneurship | MBA+MFM Rotterdam School of Management
Hi Boris, very nice question. Many of the times, comparable companies are used to assess most likely growth patterns and your working capital, PPE, payables etc. calculated. However, if it is a unique model, there is an analysis carried out by industry experts who have handled many angel cases. Finally, it is the FCF that is available to you that remains the key to your growth, valuation and funding prospects.
We advice on all such matters for global firms (SMEs) that are facing many such questions.
For more details, visit us at www.inno-vest.com please... Good day! Regards, DM
Omar Hakim
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Omar Hakim Advisor
Technology Commercialization & Patent Monetization Professional | Expertise in Management Consulting & Startup Investing
Hi Boris, In our angel network (Aggie Angel Network - http://aggieangelnetwork.com), we require entrepreneurs who are seeking an investment to present us with a detailed "use of funds" plan that is mapped to a set of agreed upon milestones. These milestones need to be aligned with key business survival events like "first dollar of revenue" or "monthly cash flow equals monthly burn rate", etc. If the round is large enough (say, over $500,000 from our angel group), we may tranche our capital distributions based upon the achievement of some of these milestones. Your question about what percentages get distributed to which categories is a reasonable one, but I couldn't provide you with a useful answer without knowing a great deal about your target market, your business model, the current state of your MVP, your potential customers, your estimated cost of sales, the estimated duration of your estimated sales cycle, etc. All of these factors drive your planned use of funds. Good luck! Best Regards, Omar Omar Hakim Managing Director, Hammersmith Ventures m: (512) 577-7000 e: [removed to protect privacy] w: www.hammersmithventures.com
Boris Tkachev
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Boris Tkachev Entrepreneur
Empowering Business - Customer Communication Via SMS
Ok, what I am understanding is that funds distribution depends on a business type, and business stage. What would a typical distribution be for about 100k funds? For a company with a little more then MVP, has a product market fit and only has a few paying customers? I am trying to find out the what is the reasonable? Maybe not for the sake of raising money per se, but to figure out where to distribute financial efforts in current state of the business.
Chris Carruth
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Chris Carruth Advisor
VP/Director. Strategy | Business Development | Operations | Product | Solutions

I would add one comment, past the obvious need for a Use of Funds table.

In the early stages investors do not want to see mgmt. compensationas being anything other than a minor line item. In most cases the product (and all related line items) should be where the vast majority of your funding is being spent. If you are past this point and are in beta or beyond, then typically marketing becomes intensive compared to other expenses, including compensation.

Founders are typically viewed by investors as making their money when the company is acquired, not because they have a hefty compensation package.I am sure there are exceptions but in my experience mgmt.compensation is an area that can cause some amount of "disconnect" between the company and its investors.

Chris Carruth
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Chris Carruth Advisor
VP/Director. Strategy | Business Development | Operations | Product | Solutions

Re your question on where to spend with an MVP and a few customers - it depends on where you are trying to take your business. If your goal is to grow your customer base then IMHO the focus is a) making sure the product has a current set of features that solve a problem and b) gaining more customers. If a) is out of whack then you should focus on fixing it; if there are no short term issues with the product then grow the customer base to generate revenue to refine the product and scale operations.

I must admit I am a bit mystified on your question as it implies there is no real strategy in terms of growing the company. Perhaps spending some money on getting outside advice might be the best use of funds at this point as it is difficult to build a company if you aren't sure what you are shooting for.

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