Small Business

Angels in the outfield

Written by Lee Oliver

Despite leading the charge to bring angel investors out of the shadows, Henry Vehovec doesn’t answer his own phone anymore. “I get so many calls a day looking for angel money that I let the voicemail answer all my calls, then I sift through the messages,” says the Toronto resident. “Otherwise, I’d spend all day on the phone.” And it’s not just the phone. He has recently retired a long-standing e-mail address after a combination of spam and poorly conceived requests for investment money clogged it to overflowing. Even his octogenarian mother receives daily phone calls meant for him.

The reason Vehovec is so popular is that, as the chair of the recently established National Angel Organization — a non-profit group formed in October 2002 — he has become a point man for the once-reclusive angel community. And despite the raft of calls and e-mails, he doesn’t mind the attention. Really.

“I’m pleased to see that people recognize angels are becoming more organized and more approachable. It’s our mandate to promote angel investment, to get money flowing again after the meltdown, to keep Canada competitive,” explains Vehovec. “We’re coming out of a spiral bust. Angels have been less inclined to invest, which scares off potential entrepreneurs who might otherwise start their own, innovative companies if money didn’t appear to be so scarce. Of course, fewer entrepreneurs mean fewer opportunities for the current crop of active angels, which means less competitive growth for Canada. We aim to turn that trend around.”

And the NAO isn’t alone in that mission. Dozens of angel groups have sprung up across the country in the past few years. One of the oldest, the B.C. Angel Forum, has been introducing pre-screened companies seeking $100,000 to $1 million in funding to potential investors at biannual “angel fairs” since 1997. Another, the Montreal-based Canadian Angel Investment Network, allows interested entrepreneurs to post their business plans on its website for review by CAIN members. Currently, the site hosts 309 business plans and boasts a membership of 207 angels with nearly $1 billion available for investment.

And perhaps the most intriguing development spinning out of all this organizing: some angels are pooling their money, experience and expertise to mitigate the risks of investment — essentially turning themselves into mini-venture capitalists. Groups such as Ottawa’s Purple Angel, which comprises former Nortel execs, use a strength-in-numbers approach to evaluate potential deals, raise sufficient funds and provide well-rounded direction to a project.

So what does all this mean for the front-line, in-the-trenches entrepreneur? First, greater organization means angels are increasingly easier to locate. But that elevated profile will eventually lead more entrepreneurs to a given angel and, in many cases, more than one angel will make the final decision on whether or not to fund a given project. The result: angels are applying more stringent standards to their investments.

And they haven’t forgotten the dot-bomb. “A lot of angels lost money in the tech downturn,” says Vehovec, “so they’re understandably cautious.” In the mid-1990s, an entrepreneur with little more than an idea or a prototype might have easily found an angel willing to take on substantial risk for the lure of a big payoff. Today’s angels are more likely to demand a commercially ready product and a strong marketing plan. Concepts need not apply.

Before you even think about posting your pitch on an angel website, advises Ottawa high-tech lawyer and NAO consultant Paul C. LeBarge, keep in mind that modern angels also want to keep things simple. “Have your incorporation and shareholder agreements in place. Convoluted agreements can scare angels away,” he explains. “After all, they don’t want to spend an inordinate amount of time trying to figure out how to protect their investment.”

Some of the old rules of attracting angels still apply. “Don’t take the ‘angel’ metaphor too far,” says Vehovec. “Some of us may be in this to avoid codgerhood, but we’re still businesspeople and can spot a bad idea or flawed plan pretty quickly.” Angels will almost always favor companies that play in their industry of expertise.

Vehovec’s final piece of advice is to look for people who may not even know that they are angels. “There is a huge pool of latent or potential angels out there,” he says. “Sure, a lot of angels are in it for the money, but there are also a lot of people out there who love putting their contacts and expertise into play just to experience the rush of making something succeed. Don’t be afraid to approach any potential investor. Angels are easier to locate today than ever before, but you still have to do the legwork to find the right one.”

Out of the ether

A selection of angel groups:

© 2003 John Schofield

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