Angel investors: Spreading your wings

Angel investors are an often unexplored source of funding.

Greediness is not usually an admirable trait, but early-stage companies need to explore every financing option and get their hands on funds from as many sources as possible. “Take more than you think you need,” says Glenor Pitters, who has become a finance-raising guru after co-founding DMTI Spatial Inc., a mapping technology company based in Markham, Ont., in the mid-1990s. “Different sources will bring different values.”

Since many mainstream financial firms invest primarily in established companies, startups must rely on less traditional sources. For example, angel investors — affluent individuals who typically invest $25,000 and $100,000 of their own money at a time — are one avenue often left unexplored. Government grants and programs, such as the Scientific Research and Experimental Development program and the National Research Council’s Industrial Research Assistance Program, are another. Many entrepreneurs — 70% of them, says angel investor Kevin Beattie — turn to family and friends, although that can jeopardize the relationship if the financial risks aren’t detailed.

Either way, securing financing is no easy task. That’s why groups such as the National Angel Organization and Maple Leaf Angels bring investors together and make them accessible to budding companies. But Maple Leaf Angels only considers three companies for financing out of the hundreds of proposals it receives per month. And the odds aren’t much better among government programs: the newly founded Ontario Centres of Excellence Investment Accelerator Fund offers up to $500,000 to early-stage technology firms. It will choose about 12 to 15 proposals from more than 300 expected this year.

It takes a convincing sales pitch to stand out in such a competitive race for funding. Especially useful is a well-practised elevator pitch — a 30-second spiel that sums up a product in terms anybody can understand. Since startups are risky, financiers want to ensure the product is unique, with potential for high-yield returns. Angel investors, for example, typically want at least 10 times their initial investment within eight years.

But that’s not all. “The product is only 49% of it,” says Catarina von Maydell, director of the Innovation Synergy Centre in Markham’s Investment Network, which provides resources for companies raising money. Financiers want to see market research, strong growth potential, a solid management team and detailed financial plans.

Meeting all the criteria can be a lot of work, but the payoff is worth it. Many financiers play a long-term role in decision-making and advising the businesses they fund, bringing industry expertise. “Most angel investors will want to add value, and if they can’t, they won’t invest,” says Andy Wilkes, chair of the National Angel Organization.

Help is out there, angels included, so if entrepreneurs do their homework, they can get the support they need to fly.