Criteria of average Angel Investor or Seed fund
Select the best companies with the highest chance of being funded by investors.
Selection Criteria: Most investors want a strong management team (#1), high growth in a large market (#2) and potential for strong market position (#3) via sustainable competitive advantages (usually proprietary technology) and probability to earn the investor 10x their investment in < 5 years.
Referral / Sponsorship: It helps significantly (but not required) that a company is introduced to us by an existing investor (who comes as our guest, introduces the company, explains to other investors why they invested and then most importantly organizes follow-up meetings with interested investors).
Key presentation & discussion issues that must be in your Company Profile and your Investor Presentation:
Identify the problem being solved: Clear identification of market need that is large enough for the company to grow rapidly. For example, annual sales of $15 million in 5+ years is a reasonable expectation. Able to establish a leadership market share or a goal of 20% EBITDA margin per year. Less growth potential may also be acceptable depending on market and valuation metrics.
Your solution: Unique with a clear economic value proposition, hard to copy with sustainable protectable competitive advantages (proprietary technology, intellectual property, regulatory restrictions, high switching costs, more users, increased product value or other barriers) and differentiation from competitors. Specify if your solution at development stage or has some sales or established sales with follow-on products in development.
Market Interest: Some investors want pre-revenue companies with clear protect-able intellectual property or customer letters of interest, be in beta trials, or have purchase orders from potential buyers. Others prefer companies with modest revenue. You must have a compelling strategy in defining your market segment, validation of market, for commercialization, go-to-market, obtaining and keeping a significant market share.
Management Team: an experienced and passionate team (not necessarily complete, but not a one person company) with relevant expertise and success in relevant business sector. Must demonstrate that they are coachable, what management help they need and how an investor can help grow the company to be a success. They should be based within a maximum 2 hours travelling time from Vancouver (includes Alberta and north of Seattle)
Financial: Has raised say $30,000 from family/friends and/or ideally grants from a third party (i.e. NRC-IRAP, SR&ED etc). Has a well prepared investor presentation (from attending preparation workshops such as Investor Ready), a realistic future financing plan (how much is needed to reach positive cash flow and how will this be funded?) and a company exit strategy. Many investors prefer valuations of usually less than $2.5 million for a pre-revenue company or 1x to 3x trailing revenue. If your valuation is higher, show your expected exit value calculation, when and the investor's ROI/year.
Questions? Contact Bob Chaworth-Musters at bob @ angelforum.org (email with your phone # is preferred)
Why it is so important to have an existing investor attend as our guest:
“I believe that it is absolutely imperative that an existing investor represents the interests of your company, and articulates why he or she chose to invest in it, at the investor-only debriefing sessions and at the display tables afterwards. The investment ($250+K)that we received subsequent to the Angel Forum was largely due to the interest sparked by our existing investor’s supportive comments at the debriefing session.” Zahir Abji, CEO GuardRFID
Applications: Direct applications are invited from companies that meet most but not all of the our criteria. Open to the first 20 to 30 companies to fully meet the selection criteria above, pay the registration fee and fully complete the one page Company Profile here. All applicants will be notified at the latest one week before the Forum date, but not all applicants will selected to present. If you presented at the last Angel Forum, we prefer you skip this Angel Forum unless you have reached a major milestone or your business has changed substantially.
Expected Returns: Investors are looking for companies with potential such that their $100,000 investment can be turned into a minimum cash ROI of 30% per year dependent if the exit occurs in 2 years or 8 years. A rule of thumb is that within six years, a $100,000 investment will yield 10x or $1 million. Roughly 40% of all investee companies fail, another 50% limp along leaving the remaining 10% to hit a home run to generate a profit for an investor.
Current Market: With an unsettled world / local economy, the trends are:
· Many investors are funding less start-ups, as some are out of funds, others focus on their existing investees and getting exits.
· This is confirmed by only ~55% of BC Government’s 30% investment refund program has been used with 80% of their fiscal year gone.
· Investors are investing less per company and co-investing more to diversify their private equity portfolios.
· Investors usually want a major but minority position (not 10%) in a company (at the pre-revenue stage).
· BC investors like using BC's 30% refundable tax credit available from BC companies. Companies located outside BC are at a disadvantage.
Article: PricewaterhouseCoopers' Overview of BC, Canada and US Venture Capital Markets to Q1 2010
Article: Nothing Ventured Nothing Gained (good overview of BC's venture capital industry) by BC Business Magazine, July 2010
Development Stage: Preferences are companies at the "starting sales" stage or "established sales" stage with good demand for "in-development" stage, but usually not at the concept stage.
Industry Sector: Usually half of the investors have no preferences and are open to any non-tech or tech sector such as mid-tech Manufacturing, Services, Biotech, Communications, IT Hardware & Software and New Media. The leading specific sectors in demand are Clean-Tech and Alternative Energy.
No Go: Usually there is no interest in partnerships, proprietorships, franchisee, single retail stores, mining or real estate. Newer entrepreneurs are encouraged to self rate themselves by reviewing this Investor Readiness list or review this blog: 10-things-that-make-a-business-plan-not-fundable
Not Ready? Look at our Investor Ready seminars for entrepreneurs (running since 1998) and investors.
More Details: please review the For Companies web pages before submitting your Company Profile.
The Angel Forum was founded in 1997 by Bob Chaworth-Musters and to date has held 30 Angel Forums in Vancouver. See the National Post's "The Affluent" survey Feb 13, 2001. He is a Founding 100 member and BC Board Director of Canada's National Angel Organization. Fax: 604-926-7327 All materials on this website are copyrighted with all rights reserved 1997-2012 and "Angel Forum" and "Investor Ready" are trademarked. Page updated Aug 1, 2012