Pitching to an Angel

Back in 1995, Parm Gill had such a hard time finding start-up funding for his company in Ottawa that he took his search stateside and ended up staying in California for several years.

"Nortel and all of the new companies founded around that time were all very telecom-focused, and it was hard to raise money for the new age, the Internet. You could basically say if it wasn't hardware, [investors] didn't get it," recalls Gill, now managing partner of Ottawa-based business consultancy Gill Group Consultants.

Today, finding start-up funding is still tough. That's why Gill joined the Capital Angel Network, a two-year-old group that connects start-up entrepreneurs with angel investors in the Ottawa-Gatineau region in an effort to keep more new ventures here at home.

Angel investors aren't new to Canada, but the proliferation of groups like the Capital Angel Network is. According to Bryan Watson, executive director of the National Angel Capital Organization, the industry association representing angel groups, Canada currently has about 30 active angel groups, half of which formed within the last four years. And these groups are growing: Between 2010 and 2011, total investment by angel groups more than doubled, to $82.4 million.

While the majority of angel groups leave the final decision to fund up to the individual investors, they do engage in detailed reviews and due diligence together. The collective nature of the group lets investors capitalize on each member's varied industry experiences. For entrepreneurs, the chance to pitch more than one investor at a time maximizes the chance of getting funded.

Bob Chaworth-Musters founded one of Canada's oldest angel groups, the Vancouver Angel Forum, in 1997. And while many aspects of Canada's entrepreneurial landscape have changed since then, Chaworth-Musters says one key element of start-up funding is: "The company has to grow fast."

Next to growth, the founders themselves have the biggest effect on whether angels invest, says Chaworth-Musters. In fact, he says, a CEO's demonstrated ability to accept advice can make or break an application.

But if your team is low on hands-on experience, a two- or three-member advisory board can help angels notice your application, says Gill. "If your advisory board has experience in your space, they give you credibility," he says. "Ideally those advisors are willing to, or have already, invested."

Entrepreneurs also need to know the barriers to entry they face within their industry and market, or the moat, as Chaworth-Musters calls it. Angels are going to ask, so you should be ready with a researched response explaining how you plan to overcome these obstacles.

The most common times for entrepreneurs to seek investment are at the concept sage or just pre-launch, says Gill, but right in the middle of those two points is the ideal place to present to an angel group. "Angels want to see a solid plan, with some sort of demo and product development going on," Gill explains.

While angel investment is growing, securing funding is still far from a sure thing. Half of all angel groups received up to 100 proposals in 2011, but selected only between one and five for formal review. Despite these tough odds, Gill says entrepreneurs need to just get out there and pitch: "You're going to get feedback. So at the end of the day, even if you don't hook any investors, you'll still see the value."