Angel investors are wealthy, experienced business people who invest their time and money in your high-growth business in exchange for equity.
“There are anywhere from 20,000 to 50,000 angel investors in Canada,” says Yuri Navarro, former Executive Director of the National Angel Capital Organization (NACO). “Beside the visible community, there are many who invest, but who don’t advertise it.”
Angels are often the first ones to invest in early-stage businesses and that carries a lot of weight in the eyes of future investors.
“It’s a vote of confidence that can help attract venture capital funding,” says Dominique Bélanger, Managing Partner, Co-Investments at BDC Capital.
Navarro and Bélanger offered tips to keep in mind to increase your chances of finding angel investors and persuading them to fund your company.
1. Make sure your company fits the profile
“Only about 5% of companies that seek angel investments are successful,” says Navarro, whose organization counts more than 2,000 angel investors as members. “That shows you how competitive it is out there.”
Start-up financing is high risk, so angel investors need to generate sufficient return from their winning investments to offset the losers. That’s why angels are typically looking to multiply their investment by 5 to 10 times. Your company has to have that kind of growth potential to attract their interest.
2. Get your business ready
It’s rare for an investor to consider an opportunity from the same entrepreneur more than once, so you need to be ready the first time.
Angels typically invest in companies that not only have great ideas, but a great team, and a track record for executing on ideas.
“Revenue is incredibly important,” Navarro says. “Investors are looking for commercialization stage opportunities, not concept stage opportunities.”
3. Seek out investors
There’s a variety of angel groups across Canada. Go on their websites to get a better idea of what investors are looking for.
Connect to other entrepreneurs in your industry and find out how they met their investors. Your lawyer or accountant might also know some wealthy individuals.
Another great way to meet angels is to work with an accelerator. “There’s a lot of angel activity around accelerators,” Bélanger says. “The start-ups have gone through a highly competitive selection process and this is great validation for angels.”
BDC Capital is partnering with seven accelerators across Canada. Start-ups are put through several months of intensive business training and mentorship to improve their chances of success.
4. Start building relationships
Start developing relationships with angels before you need money. They will be more receptive to a conversation about an investment when you’re ready.
5. Make sure there’s a good fit
Angel investments are long-term marriages. Once you’ve identified an angel you want to pitch, learn as much as you can about them. What are they investing in? Why do they invest? “Know who you’re dealing with,” Bélanger says. “They will also want to know a lot about you. You’re going to be together for the long run.”
Time really is money for wealthy investors. Prepare a brief, compelling story about your business, focusing on the problem your product or service solves. Why would people pay for it? What have you achieved so far?
Before you walk into the room, it’s important to have done your homework. You have to know your industry and your competition—hopefully, better than the investor.
But don’t assume you know everything. Be open to advice and criticism.
7. Be realistic
Overestimating what your business is worth is one of the most common deal-breakers when dealing with angels.
Base your valuation on the measurable success you have had to date. While angels recognize there’s potential for growth, it’s still an investment in the value of the company today.
8. Prepare for due diligence
Investors will usually want to see your financial statements, including any outstanding debt as well as the ownership and legal structure of the company.
Having all this information ready can significantly accelerate the process.
9. It’s not all about the money
Most angels are entrepreneurs themselves who’ve been through the highs and lows of managing a business. Their advice is invaluable.
“Yes, they are wealthy individuals hoping to have a significant return on their investment,” Navarro says. “But often the largest motivation for angels is to give back. Most are there to support young entrepreneurs develop their vision.”