I’ve been doing angel investing since the early 1980s after I took my first venture, a computer terminals manufacturer in Waterloo, public on the Toronto Stock Exchange. Since then, I’ve invested in well over 200 startup ventures.
I often hear entrepreneurs complain about the lack of funding. One of the reasons often given for failure is that companies couldn’t raise the required capital. I believe that’s nonsense. Good companies will always get funded. The key here is, what’s “good”?
A compelling business case is a good start. However, as an investor, I need to be convinced that the company has the experience that it takes to build a successful venture.
In Malcolm Gladwell’s book, Outliers, he talks about the 10,000 hours of practice that it takes for someone to become accomplished in their profession.
Just as I’d be averse to be operated on by a surgeon with only a few hours experience, I should be averse to investing in an inexperienced entrepreneur.
So, how can nascent entrepreneurs overcome such an aversion? Technical founders can recruit, and deal-in, co-founders with critical business skills in sales, marketing, finance, and operations. This will make it much easier to attract risk capital from investors.
Fortunately, in Vancouver’s vibrant technology community, there’s an abundance of opportunities open to entrepreneurs for attracting both human and financial capital. A good example of this is New Ventures BC. This is an annual business competition that has a vast network of successful entrepreneurs who can act as investors, mentors, advisors, or even employees to help a startup become investor-ready.
Vancouver also boasts numerous accelerators that support entrepreneurs with their business development. One of the larger ones, VentureLabs, is supported by Simon Fraser University. Another one with a specific sector focus is the Foresight Cleantech Accelerator.
There are on-going, regular angel events where companies can meet with potential investors. These would include VANTEC and the Angel Forum that cater mainly to startups seeking seed capital and the Keiretsu Forum that helps companies raise post-seed capital.
However, Vancouver and British Columbia have a unique global advantage when it comes to raising capital. The B.C. government provides support to qualifying startups by giving investors a 30% refundable tax credit – which is as good as cash. If a startup needs $500K, it only needs to raise $350K. This program started over 20 years ago and has helped entrepreneurs raise millions of dollars. For the past several years, B.C. companies have raised more than $100 million annually using these tax credits.
As companies grow and prosper and ultimately provide liquidity for their founders and investors, new angel investors are created. I have seen substantial growth in the number of individuals who are willing to write a cheque and take a risk on a new venture. What’s great about angel investors is that, unlike institutional venture capital investors, they are not a homogeneous group. Each investor is unique about the stage of investment, degree of due diligence, investment amount, risk appetite, industry sector, and personal involvement.
Remember that angel investors invest their own money whereas institutional investors manage other peoples’ money. This means that they can make decisions faster and be more flexible and accommodating. However, most investors prefer privacy and there’s no directory where entrepreneurs can find them. That’s why the angel meetings and other networking events are so important. And, in Vancouver, there’s no shortage of them!