Experienced angel investors usually allow the company to have a first/initial closing and start using the funds, provided it has raised a certain minimum amount in that first closing — an amount that’s meaningful enough to move the company to the next major milestone (e.g., finish and launch product). Additional closings are sometimes allowed if they are within an acceptable period (e.g., 60 to 90 days) after the first closing.
The minimum threshold is sometimes required as a condition to the first closing because angels want to make sure the company has raised enough money to get to the milestone. This way, even if additional closings don’t occur (i.e., the company can’t raise additional funds), it will be less likely to run out of cash during development.
Photo by: jurvetson
For example, if the startup needs $500,000 to reach the milestone, but it can only raise $250,000, seasoned investors might refuse to close because by doing so they might put their investment in jeopardy — the funds might be spent, but the startup might only be halfway through the milestone. Both the startup and the investors are doomed if the company can’t raise follow-on money on time.
Example #1
The first closing will be for at least $500,000 and will close on [date].
Example #2
Closing: As soon as practicable following the Company’s acceptance of this Summary of Terms and satisfaction of the conditions described below under “Conditions to Closing” (the “Initial Closing”). Up to two (2) additional closings may occur at any time during the 90 day period following the Initial Closing.
* For series, references are published in the last installment of the series.
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