A Practical Guide to Angel Investing: How to Achieve Good Returns

Chapter 2 - Find Good Companies

Find Good Companies

The better your deal flow, the better your chance of finding great companies to invest in. You should seek to find at least 10 good companies for every one you pick. For many professional investors (e.g., venture capitalists), that number could be as high as 100 for every one they invest in.

This is not just a numbers game. You want quality more than quantity. If you can clearly communicate the kinds of deals you are seeking, and the value that you are capable of adding to them, then you can help ensure that you get both good quality and sufficient quantity of potential deals in which to invest.

2.1 Sources of Deals

Incredible companies, those with an excellent management team, great intellectual property (IP), customers and revenues, do not mysteriously appear from nowhere. During the pre-investment, bootstrapping phase of their startup, entrepreneurs need to network with a tremendous number of people to gain access to team members, facilities, resources, advice and customers.

Good entrepreneurs are well-connected – but are they connected to you? Ideally these entrepreneurs will be referred to you by people who already know them well and whose opinions you respect.

Here is a starting list of places for you to look:

Your social and professional network – Often your most trusted source of referrals will come from close friends, business associates and professional colleagues. If your immediate circle of associates can give you access to good companies, then you may not have to look very far.

Networking and educational events – Entrepreneurship has become very popular, and most cities have dozens of related networking and educational events that draw crowds of founders, founding team members and startups. Often the event organizers are seeking people like you to give a presentation, sit on an expert panel, or be part of the jury for a competition. These can be great ways to expand your network, raise your profile, and let people know that you are looking for deals.

Universities – Most universities have incubators, accelerators, business plan competitions, entrepreneurship degrees or courses, technology transfer offices, great labs, and injections of government money. Add to this the educated young people seeking jobs and you have a recipe for large numbers of new startup companies.

A difficulty is that universities can be labyrinth-like, without a central point of focus or contact. Each department or faculty may offer its own programs, facilities, competitions and advisors. For example, at Ryerson University in Toronto, we generate over 400 new startups a year through almost a dozen different incubators and accelerators (ranging from digital media and urban energy to fashion, law, design and social ventures), many different competitions and awards, several seed capital sources, and our own venture capital fund (Ryerson Futures) that offers up to $80,000 in financing. Each of these programs has its own group of advisors, mentors, funding and educational programs.

Regional innovation centres – These not-for-profit organizations tend to be funded by the government, but are not part of the government. Almost every major city in Canada has one, and relatively large cities might have over a dozen, funded by different constellations of municipal, regional, provincial, federal, charitable and sponsor organizations. They often contain incubators and provide entrepreneurs with such services as mentorship, education, access to Entrepreneurs-In-Residence, consulting, and networking opportunities.

For-profit incubators, accelerators and co-working spaces – These often provide startups with an intensive three- or four-month growth acceleration and around $10,000–25,000 in funding, office space and facilities – along with mentorship, services and introductions to customers – in exchange for around 8% of their equity. These organizations are always seeking follow-on investors when their hatchlings graduate. Other accelerators provide much larger amounts of funding: FounderFuel in Montreal invests $50,000–100,000 of capital and over $400,000 in perks and services.