Will an angel raise a hand for your startup?
National headlines this month reveal that angel investing is on the rise in Canada. While activity is increasingly robust across Canada, Ontario remains the juggernaut.
Waterloo Region, for example, has an especially strong angel community. The region boasts a fair share of lone-wolf angels, hobby angels, and a significant group of more than 200 angels who are members of the Golden Triangle Angel Network (GTAN).
After seven years, GTAN has invested $32 million in more than 62 companies, with a $62-million economic impact. The National Angel Capital Organization (NACO) rated GTAN one of the top 5 angel groups in Canada for several years running.
Many are wondering, who are these angels? More importantly, how can one gain an angel audience?
In order to work with angels, it is of paramount importance to develop a relationship. The first encounter most startups have with angel investors is while initially looking for growth capital.
Many angels make it their business to volunteer and mentor with startup programs like those at Communitech, Velocity and the Accelerator Centre. Often this is where the founder-funder relationship begins, which is the most important part of the deal.
Here’s why: To differentiate yourself from other startups, it is an enormous advantage to have an angel advocate navigate you through the funding funnel.
GTAN has a simple application on its website requiring some basic information, such as your business summary and your value proposition. It asks for 3-12-18-month milestones and requests such details as your revenue, expenditures and net profit/loss.
For an insider’s view of how to best stand out in this process, call on your angel advocate.
GTAN has a selection committee that combs through every application, selects companies to pitch to the committee, and — with luck — green-lights the companies to the monthly investment meeting. GTAN President Rob Douglas always reminds the crowd, “We are networking with our cheque books, not our business cards.”
GTAN and nearly every other angel group across the country have a similar pitch format to Dragon’s Den. Three founders take the stage individually and pitch their company for investment.
What differs from the TV Show is, well, everything else. There are typically more than 60 investors at GTAN meetings, and there is no on-the-spot negotiation. After a company completes its pitch and answers any questions the angels may have, it leaves the room.
But the process doesn’t end here. In fact, this is where it gets interesting.
Angels will talk openly about the company. For founders, this is where your angel advocate comes in. The pitch can’t include everything, so the angel will discuss their interest in the opportunity. Those discussions often determine whether the company advances into due diligence.
The National Angel Capital Organization (NACO) released its 2015 Report on Angel Investing Activity in Canada, which looked at more than 30 angel groups across the country. The funding funnel paints a very competitive picture.
In 2015, there were 4,473 applications for funding to angel groups. Of those, 1,139 companies — or about a quarter of them — made it to the presentation phase. There are a number of reasons why this is such a low number; but it speaks to the importance of having an angel on your side in the room.
From there, 407 went into due diligence, and a final 283 companies received funding. The average deal size in Canada was just over $1 million.
How do you get an angel to raise a hand for your startup? Angels aren’t venture capitalists or government funders. They are people – very busy people.
Work to their schedules, respect their time and create a relationship. It may be the best business relationship you ever make as you grow your company from startup to enterprise.