Angel investing · Contracts

How much due diligence is typical in verifying contracts?

Anonymous

March 13th, 2018

First time prospective angel investor here. A mentee of mine drafted a Letter of Intent and has received signatures from several prospective clients that plan to pay for the mentee's service when it's up and running. I believe in my mentee and the concept, and I'm impressed by the list of prospective clients. I do wonder how to get in touch with these clients though, and what to ask them when I do. Should I email them myself, or should I have the mentee schedule the conversations? Should I have the mentee on the line for these calls or take it 1:1? I don't have a ton of questions to ask, mostly just want to make sure there's no red flags, but I also don't want to go against appropriate etiquette in these situations.

Dave Jules Founder and CEO of Underlined Apps

March 14th, 2018

David M has a great response!


Just to add to it, I would highly recommend both you being on the initial call since you will be having some sort of involvement. Who emails them wouldn't matter as look as you are involved in the thread and cc'd. Also, since you don't have a ton of questions make sure to tell them it will be a very brief call or a 15 minute call. Also, if you are worried about red flags it's always good to ask to speak with their clients or individuals they have done business with in the past. That always helps me. Lastly, I've posted some tools I use to help schedule these type of meetings since there will be multiple schedules to deal with here.


Great tools to use to schedule these calls:

- mixmax.com (great tool used to insert availability in an email)

- calendly.com (easy way to schedule meetings and appointments)


Best regards,

Dave


Underlinedapps.com

David M

March 14th, 2018

Coordinate through your mentee. No one will or should put up with someone going around them. "How to get in touch" Simple, its your mentee's list of contacts. Communicate what you need to see, and he can either make it happen and get your investment or he can't. His contacts, your money. Communicate until you both are comfortable.

David M

March 15th, 2018

The other thing you should consider if you have not is to scale your investment in tranches with deliverables. So in other words, rather than make one single investment that would need say 30 LOI's to actually come through, reduce your investment size initially. Now from his standpoint, he will want to make sure that your role in the company is contingent upon you delivering more financing as he delivers on his LOI's. This is furthering your security in the deal. Because if I am reading this correctly, you are concerned that your mentee will be able to deliver which is understandable. But beyond his ability, you have to understand LOI's are not contracts. An LOI does not guarantee that person will pay down the line, its merely one step better than a handshake agreement.