Much ado about angels has been made of late in the Canadian blogosphere – and not the kind that have wings and strum harps – but rather the kind that invest in startups, and how angelic they really are in making these investments.
As my first blog as part of the Community Bloggers program on ITBusiness.ca, I thought I would share some thoughts.
What is an Angel?
At a basic level it is an individual who invests his or her own money in a company, venture, founder or project. It is not institutional based; therefore, in most cases the angel is usually representing their own interests. They generally have not hired a staff person or an analyst to do their investigation or due diligence.
Where do these angels come from?
They come from all walks of life; however, they are usually successful business people who have built traditional companies or have been executives of Fortune 500 companies. Many are PhDs, corporate finance specialists, entrepreneurs, or people who have attained a certain level of wealth resulting from their business activities. By definition of the Canadian Provincial Securities Commission they must be an Accredited Investor to invest in a security without the issuance of a prospectus. As a result, many of these angels must have accumulated investable assets of more than $1 million. To describe these people as unsophisticated, as Jevon MacDonald and commentators have suggested is a total misrepresentation of their accomplishments and ability.
Why are angels motivated to invest in high risk business ventures?
For the most part these are individuals who want to give back. They are people who want to engage for the greater good of society. In many cases, the angel was given a break along their path to success and want to pay it forward. Angel money is often referred to as “smart capital” or “mentored capital.” Most angels are looking to be engaged with the businesses.
According to Angel Resources Institute research, the most successful exits by angels were in companies where:
- The angel has deep subject matter expertise.
- Spent a substantial amount of time in due-diligence with the company.
- Were actively engaged with the company on the advisory board or board of directors.
If the question “How can I add value to your company?” can’t be answered by the entrepreneur, most angels will pass on the deal. Too many founders have the misconception that angels invest in innovation to become rich or for the economic rewards of the transaction. Although that is true in part, it is not their primary motivation.
I have seen it written this week by Boris Mann that “The angel groups’ business model is not the entrepreneurs problem”. This couldn’t be further from the truth. Without alignment between the investor and the founder the true benefit of the angel will not be obtained. It is not all about the money; it is about the value of engagement that the angel brings. We at Maple Leaf Angels have passed on many deals where the founder has viewed us a just a source of financing and not the source of experience that we individually represent. On the other hand, we have very rewarding experiences with companies such as Shiny Ads where a number of angels are active in the acceleration of that company and providing advice to the CEO. The members of Maple Leaf Angels are engaged in the startup community serving as mentors with Incubes, MaRS ICE Practice, Extreme Start-ups and more. These are but a few of the many examples where angels add value to the companies they invest in.
Having been a member in five different angel groups I think it’d a shame for the valuable experience of these investors to be dismissed as not being valuable to a founder. I have a great degree of respect and admiration for the tenacity of today’s entrepreneur. But I believe they will do themselves a significant service by seeking out the right investors for their company. This is an investor who provides experience, mentor-ship and investment. In the end both the founder and angel investor will win.
By way of disclosure I am Chairperson, The Board of Directors; Maple Leaf Angels Corporation. I am Mentor in Residence at Incubes and I am CEO and Founder of Jaguar Capital, a commercially based advisory practice to growth companies.