As a follow on to the start-up funding survey, and to help start-ups have a better understanding of sources of funding, I’m going to write a series of articles on the various sources of funding available to start-ups. To begin I’ll start with Maple Leaf Angels and a discussion I had with Rob Koturbash, Managing Director of the group and fellow board member.
Craig: Thanks for taking the time to speak with the StartupNorth readership. To start, can you give the ’30 second elevator pitch’ on Maple Leaf Angels.
Rob: Sure, Maple Leaf Angels was founded in 2007 and is based on Toronto. We are an angel group that has approximately 40 accredited investors as members. We hold 10 investment events each year where 3 companies present to our members at each event. Those members that are interested in a company will engage the company in due diligence and if they like the deal will close an investment.
Craig: One question I frequently get asked is if Maple Leaf Angels invests as a group/fund or individually. Can you clarify this.
Rob: At this point, Maple Leaf Angels is a deal facilitation organization. We screen deals and present the best ones to our members. If our members are interested, they ultimately write individual cheques into an investment. Not all members of the group will invest in a given deal.
Craig: What types of deals has the group done?
Rob: Since inception, we have done 17 deals for approx $5.5m. Examples include: Regen, Signalink, Homestars, Well.ca, LiveHive, Multiplied Media, Spartan Biosciences.
Craig: What types of deals do we do and how much can a company expect to raise?
Rob: We are industry sector agnostic so don’t have any given sector preferences. However, we tend to see a lot of technology oriented deals. Our sweet spot in terms of deal size is $200k-$400k and our members like to see deals where this type of capital investment in a company can help make meaningful progress. As such, we tend not to fund capital intensive companies (i.e. a company needing to build an industrial processing or manufacturing facility) or companies with long time windows to commercialization (i.e. pharmaceutical or medical devices).
Craig: Can you comment on the geographic angle?
Rob: Most angels like to invest in companies that are local to where they are located. This is because they like to get to know management during due diligence, have access to the company and be able to help the company with their business network post investment. Since our members are largely based in the greater Toronto area we tend to do a lot of deals in this area and to some extent Waterloo. That being said, with recent co-investment initiatives between other angel groups, we have done deals with companies in the US and other regions of Canada.
Craig: What stage do companies need to be at to get funding?
Rob: Of late given the economic/credit market issues, we have been seeing a lot more deals and a lot stronger deals in terms of where a company is at. Realistically a company needs to have a beta product and be looking for funding to help advance the product and drive sales.
Craig: So what about the person with an idea & a business plan?
Rob: At this point, it is not likely that our members would fund such a company, there are just too many other deals out there that are at a more advanced stage.
Craig: How should companies apply for funding via Maple Leaf Angels?
Rob: We have a link on our website where an entrepreneur can submit their business plan. Note that we are currently in our summer break (we don’t hold investment events in July/August) and our website will be under-going a refresh. Also note that given the volume of deals we are seeing of late, its best to try get a referral.
Craig: What happens ‘behind the scenes’?
Rob: I do a first vetting of companies that apply. For companies that look to be good matches to our criteria, I usually call them up to discuss further. We have a selection committee of 4-6 members that meets each month prior to an investment event. I narrow down to 6-8 companies for the selection committee to evaluate. During the selection committee meeting, companies are asked to do an abbreviated 15min pitch to the committee (either in person or via phone). Based on these presentations, the selection committee selects the 3 companies that will present to our members at the next investment event.
Craig: So how many companies do you see each month before you narrow down to the 6-8 that will present to the selection committee?
Rob: It varies by month and has been quite high this season. On average, I would get 30-40 applications each month.
Craig: Any suggestions for companies for how they should approach Maple Leaf?
Rob: My 3 suggestions would be relationships, persistence, and external referrals. In terms of relationships, I get a lot of deals that our members refer to me. All of our members have strong business networks and generally know of a lot of start-up companies. If they have gotten to know the management & seen their progress, this carries a lot of weight vs somebody out of the blue showing up and asking for funding. In terms of persistence, rightly or wrongly, there is an in-balance between the demand of people looking for funding and the supply of sources of funding. With just the sheer numbers of companies out there looking for funding, companies need to be persistent in getting noticed and getting their message heard. Lastly, in terms of external referrals, Maple Leaf Angels has relationships with a variety of professional service firms (i.e. Cassels Brock, PWC), government funding agencies (i.e. IAF, IRAP), and mentor organizations (i.e. MaRS, ISCM). Often time a company will have a past working relationship with one of these organizations. So if somebody from one of these organizations calls me up and says they have been working with a company and feel they are a good opportunity, that obviously carries a lot of weight.
Craig: What are the common pitfalls people have when applying for funding?
Rob: The main pitfall is being able to properly pitch. People not being able to clearly explain what their company does or what the business model is. Or people focusing too much on explaining the technology and not what the investment opportunity is. A lot of people think they know how to pitch, but a surprising number of people do not do a good job at pitching (either to the selection committee or to our members).
Craig: Can you comment on how long it generally takes for a company to ‘get the cheque in the bank’?
Rob: From the time they present to our members at an investment event, if this is the first outside investment, it generally takes 3-4 months to close the deal. This includes the time for our members to complete the due diligence, term sheets, legal. If a company has had prior outside investment and there is an existing investment round in play, the timeframe can be shortened to 1-2 months as you would save time on the term sheet and companies will have a lot of the legal aspects already in place (i.e. shareholders agreement).
Craig: Lastly, why should companies consider Maple Leaf Angels for their funding needs?
Rob: Our group brings 2 aspects to a company. One obviously is the capital. But another and often stronger benefit is the operational expertise and networks of our members. A lot of times when our members invest in a company they are willing to get quite involved with the company to help them out. This can be in the form of being on the board, being an advisor, or using their professional network to open some doors. Having experienced business people to give advice and help give sales/alliance connections is extremely beneficial to an early stage company.
Craig: Well thanks again Rob for discussing Maple Leaf Angels today. I know there is a lot of work that will happen over our summer break and we look forward to having another great season starting in September.
craig at mapleleafangels.com