Angel Investors 101: Are Angel Investors Right for Your Startup?

Wings to the Moon: How to Build Your Company with Angel Investors

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Being in the early stages of founding a startup is tricky. As you decide to take a risk and start a business, you might wish that you had a “guardian angel” to help you through this journey. If your startup is pressed for funding, angel investors might be an excellent option for you.

In 2019, Angels in Canada invested $163.9 million, according to a report by Valhalla Angels and Hockeystick.

What Is an Angel Investor?

An angel investor is a wealthy, experienced entrepreneur who funds companies in their earliest stages of development. Angel investors are looking for the next big thing, so they are typically willing to take larger risks than VCs and banks. An angel wants to get first dibs at companies that could potentially grow tenfold. From an entrepreneurial perspective, an angel is your best friend.

Angel investors operate in a very transparent fashion. In the tech world, there are many ways to fund a business. Some of them are very complicated, while others are only available to established companies with a proven track record. Angel investing, however, has a pretty simple process. If you have ever watched Dragon’s Den, you’ve seen the investors on the show give entrepreneurs a lump sum of money in exchange for a stake in the new business. This is the same way angel investors do it. 

Perhaps the most defining feature of angel investors is their role in the business relative to other investors. From the very beginning of founding a company, angels act as a source of not only funding but also advice, knowledge, and emotional support. They truly act as “angels” that push your company through the rough patches of launching and use their expertise to help you scale.

When Is Angel Investing the Right Choice?

When angels invest, they are betting their own money on your success. As a result, your victories are their victories, and your losses are their losses. This means that they will do everything they can to make your goals a reality. Getting an investment from anyone is a big risk as it determines who you’re going to deal with for the long haul, so it’s important to make sure you’re going down the right path. Taking on an angel investor is a particularly smart choice when:

  • You’re looking to build immediate strong connections or trust with future business partners, the first angel investor would not only contribute capital but strategic connections in the industry that can help you develop your product,  achieve product-market fit, and build momentum.
  • The angel investor is the one that’s been in your shoes, in your niche. Often, highly successful entrepreneurs in an industry go on to become investors in it. If you’re lucky enough to persuade an angel like this, you’ve got yourself the perfect mentor. You have someone who automatically knows your business’s ins and outs and how to make you stronger.
  • You have a clear strategy and a set team and need funding without wanting to relinquish control.

When Is Angel Investing The Wrong Choice?

As with everything in life, angel investing has its catches and some of them could be a dealbreaker. 

  • As valuations drop, fearful investors might shun you away as a prospect no matter how good your numbers and pitch are in favour of existing companies in their portfolios.
  • Angel investors need you to show them that you have some idea of what you’re doing. This means that you’re going to need to give them bank statements, detailed company plans, income records, among other documents. 
  • Many investors want to give you money and leave until they can come back to pick up the profit. If you don’t pursue caring, interested investors that are motivated to succeed, you might be missing out on a great source of advice, help, and general security for the growth of your new company. Investors that want to go the extra mile make your chances of success that much better. 
  • If the investor is looking for a quicker payout than your company can deliver.
  • If you’re far off in your entrepreneurial journey and are seeking large capital investment, angels are probably not the answer for you. According to Valhalla Angels’ repost, the mean angel investment in Canada was $282,000 and $1.5 million in 20

Where to Find Angel Investors

Start by checking your own network. Look for people with whom you have a rapport and who are more likely to look out for your best interests. If they’re not investors themselves, they can introduce you to angels. The perfect fit may be someone from your university, family, network, or even your own neighbourhood. Having a personal connection to your investor makes the shared desire for the success of the company that much more enticing. 

If you don’t know any investors, you’ll have to find them and pitch them on your own. Luckily for you, there are over 30 angel groups in Canada, and several online communities dedicated to matching angels with startups. The main ones are:

  • Angel list – This is a fantastic option because it’s a website designed specifically for startups trying to get on their feet. It also doubles as a recruiting tool for your new business which fosters an even deeper network of potential investors.
  • Golden seeds – A startup that focuses specifically on helping female entrepreneurs that are currently launching their startups. This is a great way to find help in breaking the glass ceiling of the entrepreneurial world, especially if your business has a female target audience. 
  • Angel Investment Network Blog – If you’re looking for the biggest possible pool of options, this is the place to go. With almost 400,000 members, AINB has what is perhaps the largest community of angel investors in the world, and a very active social media presence. 
  • Life Science Angels – Although this platform is responding to a specific niche (healthcare and anatomy), it’s consistently been one of the fastest-growing sites around. If your business has anything to do with life science, you’re in for a treat.

Pitching investors is an exhausting, full-time job, so you need to stay focus and only try to connect with the ones you think are the right fit. You may like the sound of having big hitters such as Gary Vee or Brad Feld on your list of investors, but you need to think of the time and effort you will spend trying to get their attention VS how likely they are to invest in your business. While more and more investors are betting on companies located in provinces they don’t live in, according to Valhalla Angels’ report, 52% of the investments made in 2019 were in the same province as the angel group. So start with investors in your own city, then your own province. If all fail, start looking outside for backers that have an interest in your industry. The more selective you are with who you reach out to, the more targeted your pitch will be and the more likely you are to get the much wanted yes.

As you get your first investor(s) and startup proving your success, it will become easier to build an investor network. In fact, private companies with good track records have investors lining up to get a piece of the pie. 

How To Give an Effective Pitch

Pitching investors, especially angels, focuses less on the startup and more on you as a founder. After all, new companies haven’t been running long enough to have a track record that investors would consider. This means that investors can only gauge the potential and ability of the founder to make their company a success. To market effectively, you need to present yourself as someone who has the skillset, confidence, and strategic vision for your business. They need to know that you are the person who can turn a new idea into revenue, growth, and eventually profit. 

Your brand identity, why you exist, what problem you’re aiming to solve and the potential profitability of your solution should be a significant factor in every aspect of your decision-making. Every investor is looking for something specific and different. Some prefer certain industries over others. You need to understand what your potential investor is looking for before showing them how you can deliver.

  • What are they interested in?
  • What change do they want to see in the world?
  • What do they want to see out of your startup?
  • What is their definition of success?

By getting a clearer picture of what potential investors are looking for, you significantly increase your chances of a positive outcome. 

When you consider your investor, a big red flag is when they have a different business rhythm from you. For example, some investors might want to make major changes to your company or goals. They might want to change your business model altogether. While you should think about the ideas they have, you must look for investors that are mostly on the same page as you and won’t want to modify the business in a way that makes you uncomfortable. 

Even if you know your investor and have a great business plan, you can still fall short of getting an investor. This may have nothing to do with the business or investor but your ability to persuade. Regardless of the industry, universal tips will always make you more convincing.

  • Always back up your claims with data. This can be market research, previous sales, and company costs that make you appear like a strong business. 
  • Make the presentation clean, catchy, and memorable.
  • Brand yourself and show why you are the right person for them to bet their money on

There’s an important difference between pitching to individual investors and communities/groups of angels. For one, the process for getting a meeting with a group is often more selective, so it might be harder to get your foot in the door. Additionally, groups are usually cohesive, full-time investors with less to lose. This means that they will take a harder look at your business when analyzing the opportunity. It also means that you will probably hear back from them sooner than you would an individual investor. A group will also give you more diverse, exhaustive advice than one person and would be able to provide more follow-on investments as you grow.

The Way Forward

As a competitor on the market, getting angel investors to fund your business early is a game-changer. By getting their investment and expertise, you’re fueling your biggest and most important stages, such as R&D and achieving product-market fit. This will allow you to focus on the other important things down the road. As your company grows and hits one milestone after the other, your angels will watch over you with the network they have helped you build. 

When it’s time to raise venture capital, check out our Canadian venture capitalist database. You can filter results by province, stage of investment, and industry to find the right firms. If you’d rather hold on to as much equity as possible, SR&ED financing might be the right funding solution to have working capital while staying in control of your business.

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