“ANGEL INVESTORS”  entrepreneurs have heard tossed around,but it’s not always fully understood. That’s where we come in. We spoke to the National Angel Capital Organization,Angel Investors Ontario and Durham Region and Northumberland County’s Spark Angels to get the goods. Who are these investors and what are they looking for? Read on and find out everything you need to know, from Angels to Z.

What is it?

Simply put, angel investing is “an individual or group investing in exchange for equity in a business,” say Claudio Rojas, CEO of the National Angel Capital Organization (NACO), “but we see it as much more than that.” Yes, angel investing is about access to capital, but there’s more to swapping money for shares when it comes to this type of investing. “To the most successful groups of angel investors, it’s about mentorship. It’s about breaking down barriers to success and opening up doors of opportunity for entrepreneurs. It’s about nurturing entrepreneurs and bringing economic prosperity to their local communities,” Rojas says. Jeffrey Steiner, president and executive director of Toronto-based Angel Investors Ontario (AIO), agrees. Community plays as big a part as getting in on the ground floor of a high-potential company. “At the end of the day, it’s about commercializing new technologies and creating jobs, but angels also use their experiences and contacts to help, coach and guide entrepreneurs.”

Spark Angels’ Malcolm MacTaggart describes this as a “moral component” to angel investing. “It’s about giving a hand-up, not a handout. They act as advisors to the founders, giving them advice and providing them with industry introductions to help facilitate growth.”

Who are they?

They’re a diverse bunch who don’t mind taking a leap of faith on brilliant ideas and dedicated people in the early stages of a company’s scale and growth, says Rojas. “Successful angels tend to care deeply about their local communities, diversify their investments and leverage angel networks to develop best practices and mitigate risk.” There are networks all over Canada, including Spark Angels in Durham Region. The Northern Ontario Angels (NOA), for example, was recently recognized as one of North America’s leading angel groups. They have invested more than $130 million into Canadian entrepreneurs and have helped to create 2,200 full-time and 1,481 part-time jobs in their communities. “This group follows a community-first model in their approach to investment and is a leading example of the impact of angel investors on job creation and economic growth,” he says. Another example is The 51 — Calgary’s newly formed angel group that focuses on female investors. “NACO is excited to support this group to increase access to capital and mentorship for women entrepreneurs.”

Angels in the Ecosystem

Entrepreneurs lean heavily on angels and angel networks, and for good reason — these are often the first people to offer support. “Providing this initial funding and guidance is what makes angels so crucial to both the entrepreneurial ecosystem and the Canadian economy,” says Rojas. (Investments traditionally range from $150,000 to $1 million, though some angels start out investing less, depending on the deal.) “This is an inherently risky asset class, as angels support companies before banks and more traditional venture capital investors.” Steiner points to the “funding gap” that’s filled. “These courageous and experienced angels spend a lot of their time evaluating candidate companies, and even more time giving freely of their knowledge and contacts to help entrepreneurs succeed.”

“At the end of the day, it’s about commercializing new technologies and creating jobs, but angels also use their experiences and contacts to help, coach and guide entrepreneurs.”

What are they looking for?

It depends, says Rojas, and varies from group to group. But most often, angels are looking for investments in the industries in which they already have experience or expertise. Still, it’s not all about the industry — it has a lot to do with the people behind the service or product. “Each angel investor often has his or her own approach when it comes to investing, but a common term you’ll hear among them is, ‘bet on the jockey, not the horse,’ which is their way of saying the successful attributes of a good angel investor is looking beyond the business and sitting down with the founders multiple times to get a sense of who they are.” Rojas agrees, and says paying attention to the founders or founding team is key. “Angels ask themselves, ‘does this person or team have the drive and expertise to build a world-class business? Do they inspire others? Can they evolve as the business grows?”

Spotlight

AIO

angelinvestorsontario.ca
This umbrella organization helps angel groups and investors across the province. “AIO works to spread best practices to make the investing experience more efficient and to preserve the previous time of investors and entrepreneurs alike,” says Steiner. “We also run some central services that all angel groups can use, so that each group doesn’t have to reinvent the wheel in serving their members and their local communities.”

NACO

nacocanada.com

NACO has been around for 20 years and has offered the country’s entrepreneurial and innovation community a national platform. “We represent a growing membership of more than 4,000 angel investors, incubators and accelerators as they help Canadian entrepreneurs turn good ideas into great businesses. Over the last nine years, our members have made investments in 1,472 companies, totalling more than $853 million of direct investments. This has resulted in the creation of 7,700 jobs across the country. As a national platform, NACO enables collaboration, partnership opportunities and faster access to Canada’s innovation ecosystem.

SPARK ANGELS

sparkangels.ca
As the angel group serving Durham Region and Northumberland County, Spark Angels holds monthly investment meetings where members meet and hear pitches from three up-and-coming start-ups. “As an organization, we help facilitate the initial relationship between founders and our investing members,” MacTaggart says. “If you’re a successful business leader who is looking to give back to the community, Spark Angels provides that opportunity to share your expertise, as well as the education in order to know what is actually involved with investing in early-stage start-ups.”

Glossary

ACCELERATOR: Publicly or privately funded initiatives that support start-ups by helping them develop their business for a predetermined period of time (usually a few months). This can include coaching or boot-camp events that help entrepreneurs scale their business.

ACCREDITED INVESTOR: An individual who (alone or jointly with his or her spouse) owns financial assets having an aggregate realizable value that exceeds $1 million (before taxes). Accredited investors have net incomes more than $200,000 (before taxes) in the last two years (or whose net income combined with his or her spouse exceeds $300,000). They also have knowledge and experience in business and finances, and can evaluate the merits and risks of investments.

BUSINESS PLAN: The document that describes the entrepreneur’s idea, an executive summary, the market problem, solution, business models, technology, marketing strategy, competitors and forecasted financial data.

CORPORATION: A legal entity that’s chartered by the federal or provincial government. Owned by stockholders.

DUE DILIGENCE: The process angel investors undertake to analyze and assess the value and potential of an investment opportunity. (Typically takes 60 to 90 days.)

ELEVATOR PITCH: A super-concise spiel or presentation of an entrepreneur’s idea and business model, as well as marketing strategy and
competition. It shouldn’t be longer than an average elevator ride and is most effective when kept quick and to the point.

EQUITY: Shares that represent an ownership interest in a company.

EXIT STRATEGY: The company’s plan to liquidate the company’s stock in the form of an acquisition by a publicly traded company or a public offering.

INCUBATOR: An organization that supports a start-up within their first few years. These can provide offices, lab space, meeting facilities, resources and mentoring programs. They are different from accelerators because they focus on developing the company over a longer period of time.

NET INCOME: The net earnings of a company after deducting all costs, including taxes.

SCALABILITY: The ability for a company’s product or service to grow very big, very quickly.

SEED MONEY: A start-up’s first round of capital, which is often either a loan or investment in stocks. This money (often provided by angel investors) provides start-ups with the capital they need to really start developing and growing.

Lisa van de Geyn

Lisa is a longtime veteran of Canada’s magazine scene who has worked at or freelanced for several of the country’s venerable titles, including Chatelaine, Canadian Living, Today’s Parent, House & Home, Best Health and Reader’s Digest.

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