Category: Angel Investors

Maple Leaf Angels and the RIC Centre are excited to announce a new partnership initiative.

Maple Leaf Angels is Ontario’s largest and most active angel investor groups having invested close to $6m in financings since its launch in 2007. Maple Leaf Angel’s membership base is largely in the core of Toronto and the partnership with the RIC Centre allows Maple Leaf Angels to establish a chapter to serve the western part of the GTA.

“In order to ensure that we have a large pool of investors who are looking to make deals, we were looking for a way to effectively tap into the Mississauga/Burlington/Oakville areas” says Rob Koturbash, managing director of Maple Leaf Angels. “The RIC Centre is an ideal partner as it allows Maple Leaf Angels to integrate with the start-up ecosystem they have fostered through their early-stage company mentoring and advisory services”.

The RIC Centre is based in Mississauga and is one of the Ontario government’s 12 regional innovation networks. The RIC Centre offers advisory, mentoring, networking, and industry outreach programs to help companies commercialize ideas in the aerospace, advanced manufacturing, life sciences, and emerging technology fields. RIC is currently active with more than 60 companies.

“We are excited to team up with the Maple Leaf Angels” says Pam Banks, Commercialization Director of the RIC Centre. “We feel this partnership offers an excellent opportunity for some of our promising clients, who are looking for funding, to have access to Maple Leaf Angels. We are also looking forward to being able to leverage the experience and networks of angels that want to get actively involved with helping and supporting their investee companies”.

The first Maple Leaf Angels – West chapter meeting will be held on November 19th and is open to all current or potential angel investors. The meetings will be held at the RIC Centre and will provide a convenient location for angel investors in the western GTA to access Maple Leaf Angels’ deal flow and leverage the due diligence expertise of the existing 40+ members to help evaluate deals. Maple Leaf Angels has provided its members access to early round investments in some of Canada’s leading start-up companies such as Well.ca, Homestars, Regen Energy and Streamlogics (acquired by Thomson Reuters).

craig at mapleleafangels.com

The National Angel Capital Organization had their annual summit last week in Toronto. The summit is a gathering of angel investors and angel group managers from across Canada to discuss best practices and current trends in angel investing. Two main themes in this year’s conference were co-investment and early exits. I’ll cover co-investment in another post. In this post I’ll talk about early exits as presented in talks by Dave McClure and Basil Peters.

The basic premise that both Dave and Basil spoke about was that for certain types of businesses, you no longer need (or want) to get traditional venture capital investment. For many software and Internet start-ups, you can get a product to market with minimal capital. This makes it possible for a company to realize an exit and provide payback to investors in a few years. This can start a cycle of wealth creation that will fund future companies/start-ups and contribute to a strong start-up ecosystem.

The following factors contribute to an environment that is supportive of early exits:

1. Entrepreneurs in the Internet/software space can productize their ideas with minimal capital (i.e. several hundred thousand dollars) thanks to advances in development tools, cloud based computing, etc.
2. Friends, family, founders and angel investor rounds can provide the necessary capital to get a company from start-up to market (i.e. Maple Leaf Angels typically does deals in the $200k-$400k range).
3. Established companies in this space (i.e. Google, Yahoo, Microsoft, IBM, Oracle, etc) are very acquisitive. Innovation is harder to realize in a large corporation than a start-up. As such, large companies look to start-ups to prove out a new idea/technology and then acquire the start-up. Large companies are good at taking this start-up and applying their sales, marketing, operational expertise and growing it into a several hundred million dollar operating unit. In other words, large companies use M&A as a form of R&D investment to help find the products that will help fuel their top line revenue growth.

The model above works when M&A exits are in the sub $50 million dollar range because:

1. Typical valuations for a first round of angel investment are in the $1m to $3m range. As such, a strong return can be realized assuming there are no more or only a couple of subsequent financing rounds with minimal dilution.
2. Smaller value acquisitions are more frequent, easier for the acquiring company to do, and there are more acquiring companies that can be in the market for acquisitions. Large acquisitions in the hundreds of millions or billions of dollars may get the press, but they are infrequent and require higher levels of due diligence/approval by the acquiring corporation.
3. Given this math, you can see how angels can realize exits of 3x-10x based on a sub $50 million dollar acquisition at an early stage in the company’s life.

Injecting Venture capital investment into this scenario is not conducive to early exits because:

1. VC investments at the series A round are several million dollars in size and have post money valuations in the low 8 figure range.
2. A VC fund of several hundred million dollars needs to have series A winners be 10x+ to meet their overall fund return objective of 20% per annum.
3. Given this math, a return based on a sub $50m acquisition will not be enough. VCs need to have the company hold out to grow in its life to support a > $100m acquisition (or IPO) which as was stated does not happen as frequently and will take more time. Basil Peter’s states that an angel only backed venture will be likely to exit in 2-5 years whereas a VC backed venture will take 10-12 years.

So what does this all mean? Since most of the readership of this blog is in the software/web space, there is no better time to be an entrepreneur in this space to have the framework in place to start, build, fund, and exit a successful venture.

Even in the US, where you can argue it is easier for start-ups to get Venture Capital funding, angel investors fund more than 27 times more start-ups than VCs. As Basil’s blog states, it is erroneous for entrepreneurs to think VCs are the main source of funding. Successful companies can be started and profitably exited with just friends, family and angel rounds. Understanding your strategy for funding and exiting should be a key part of your business plan as angels are becoming more and more sophisticated and increasingly want earlier exits of their investments. Understanding the investment return expectations of any investor (be it angels or VCs) is critically important as it has a strong bearing size of exit they will be willing to accept and what this means in terms of timeframe to exit.

craig at mapleleafangels.com

My previous article on start-up funding sources covered Precarn. For the next article in this series, I will cover The Health Technology Exchange (HTX). I recently met with Norman Pyo, director of business development and investment to have a discussion on HTX.

Craig: Thanks for taking the time today to speak with the StartupNorth readership. To start, can you give the ’30 second elevator pitch’ on The Health Technology Exchange?
Norm: HTX is a not-for-profit organization that is funded by the Ontario Ministry of Research and Innovation. Our goal is to support innovation and commercialization in the Medical and Assistive Technology (MAT) sector in Ontario. Companies in this sector are working on things such as medical devices, medical imaging and laboratory devices. In this space we also have companies that are working on software oriented initiatives that the StartupNorth readership may relate to. Examples include healthcare IT systems to manage chronic disease conditions or remote monitoring by connecting personal medical devices to wireless devices such as the Blackberry. We support MAT companies through various programs that provide mentoring, grants, networking opportunities and events.

Craig: So in terms of eligibility, companies need to be Ontario based?
Norm: Yes, companies need to be based in Ontario for us to be able to fund them through our R&D programs; however, we work with organizations across Canada to provide linkages. We also focus exclusively on the MAT sector so we would refer other life sciences companies, such as those in the pharmaceutical or biotechnology industry, to organizations such as MaRS.

Craig: What’s the best way for a company to engage HTX?
Norm: We have three advisors at HTX, each with extensive and complementary backgrounds in the healthcare sector that provide mentoring on issues relevant to start-up medtech companies such as strategic planning, product/clinical development, regulatory strategy and early stage finance. Companies who are not referred to us should make initial contact with the HTX office. From there, they will be connected with an advisor that best fits their needs, in terms of expertise and geographic location. We mainly see early stage companies, so we actively work with the companies to understand what they are trying to achieve and see how we can use HTX resources to support them. This can include providing mentoring advice or making connections to industry partners and teaching hospitals/universities. We also run events on medical technology topics such as regulatory approval and discussion panels with CEO’s of companies in the space who talk about overcoming common hurdles and sector-specific challenges.

Craig: Can you talk about the funding programs you have?
Norm: We currently have three distinct funding programs: the Business Investment Program, the Health Technology Assessment & Implementation Program and the Clinical Validation Program. Each program has a specific focus for use of funds, all of which support advancement and commercialization of MAT initiatives.

Craig: Ok, let’s start with the Business Investment Program; can you talk about how this works and what its purpose is?
Norm: Yes, the Business Investment Program is meant to fund R&D within the MAT space. The program is funded by HTX, OCE and IRAP and provides up to $100K per project. Companies need to apply to the program with a specific project and have a publically funded research institution in Ontario lined up to perform the research. Companies much match the grant amount with 1/3 of their own money as well as 2/3 of in-kind contribution towards the project’s costs. In other words, HTX will fund up to 50% of the project’s cost and these funds will be directed to the research institution to help fund the R&D objectives of the project. Examples of past companies that have received this grant include Quantum Dental Technologies, GestureTek, and Quillsoft. An example of a company that has been awarded a grant under this program is Quantum Dental Technologies. Funding from this program helped to advance Quantum’s Canary System, which provides early detection for tooth decay, without the traditional use of X-rays.

Craig: For 2009, the initial application phase of this program has just closed. What happens next?
Norm: Correct, the call for Expressions of Interest (EOI) for the Business Investment Program closed this July. After the submissions are received, the funding partners (organizations that contribute funds to the program) meet internally to review the submissions to select the most promising projects. Those companies that make it to this next phase will then submit a full proposal. These proposals are reviewed by external reviewers who are familiar with the company’s space and that have a deep understanding of what the project is looking to achieve. Proposals are vetted against the capabilities of the company and research partner, past track record of management and its commercialization potential. Upon validation, the grant is awarded in a tranched fashion based on project milestones. The projects must be completed within a 6 to 18 month period.

Craig: To be clear, the grant is not directly paid to the company?
Norm: Right, typically, the company’s cash contribution is paid to the institution. The company’s costs over and above this are in-kind.

Craig: What is the next program planned?
Norm: We will be requesting Expressions of Interest (EOIs) for the Health Technology Assessment & Implementation Program this August. The purpose of this program is to support the acquisition and assessment of market-ready MAT products by Ontario hospitals. In other words, the program helps fund a hospital’s acquisition of a MAT product, and in return the hospital becomes a reference customer for the company’s product. Similar to the Business Investment Program, applicants can receive up to $100K per project, which must also be matched by the combined contributions of the company and the hospital/healthcare institution. The company provides a deep discount and the institution’s cost for evaluative services are recognized. The HTX contribution helps to defray the purchasing costs. Sentinelle Medical was a past recipient of this grant, and has successfully implemented their imaging technology into the Kingston General Hospital.

Craig: And the third program?
Norm: This would be the Clinical Validation Program. The purpose of this program is to fund clinical testing or validation studies of a MAT product within an Ontario Hospital. The maximum grant per project is $50K and must be matched by the company – with 80% being cash-contribution. Mespere LifeSciences was a past recipient of this grant. Mespere develops a non-invasive hand-held device to measure central venous pressure in real time; replacing the traditional expensive, invasive and infection-prone procedure of catheterization. We have launched this program through partnership with regional innovation organizations such as BioDiscovery Toronto, YORKbiotech, and The Golden Horseshoe Biosciences Network.

Craig: If a company is ultimately selected for one of these programs, how long does it typically take to work through the process and get the cheque?
Norm: This depends a lot on the project being proposed, but it typically takes between 2-4 months.

Craig: How long have these programs been in place?
Norm: We have been running funding programs since 2004 and to date have provided $8 million in funding disbursements and helped fund over 70 projects. Approximately 1/5 of this has been for healthcare IT related projects. Example of healthcare IT initiatives funded include: MedManager Interactive, HInext, and Quillsoft, who all offer innovative solutions to distinct healthcare issues.

Craig: Great, thanks for taking the time to speak today. In closing, do you have any words of advice for entrepreneurs that want to get into the MAT space?
Norm: The MAT space has some unique angles given the public nature of healthcare funding, privacy issues and requirement for clinical research validation. That being said, there are a lot of interesting problems to solve and a lot of opportunities to provide innovation in the space through software or wireless technologies. HTX is here to help support entrepreneurs commercialize their ideas.

craig at mapleleafangels.com

My previous article on start-up funding sources covered the National Angel Capital Organization. For the next article in this series, I will cover Precarn. I recently met with Gary Gudbranson, VP operations at Precarn.

Craig: Thanks for taking the time today to speak with the StartupNorth readership. To start, can you give the ’30 second elevator pitch’ on Precarn
Gary: Precarn is a non-profit organization that supports the intelligent systems industry in Canada through funding of projects that seek to advance research into commercial applications. We fund R&D initiatives for Canadian companies doing research in areas of artificial intelligence, machine vision, sensors, and robotics. We are funded by federal government departments such as Industry Canada and provincial government ministries such as the Ontario Ministry of Research and Innovation.

Craig: What are some of the things that companies in this space are working on?
Gary: The intelligent systems field is quite broad and there are many exciting companies doing interesting work across a variety of industries. Precarn has funded a project by Braintech to further develop its software for industrial robots so they can intelligently pick out the correct part required in a manufacturing process out of a bin of random parts. Another Precarn funded project by Apstat technologies developed data mining software to allow insurance companies to better underwrite insurance risks. iGO Technologies undertook a project funded by Precarn to develop computer assisted surgery solutions. In one of our most well known projects, Precarn supported the research that went into the vision system used on the space shuttle to inspect the space shuttle’s tiles while in space.

Craig: What types of services do you offer to companies and what companies are eligible?
Gary: Our main focus is on funding programs. However, since we know the companies, universities, and researchers in the intelligent systems space, we also help with networking and making connections. We will work with any company in Canada that is in the intelligent systems space that meets the criteria for our funding programs.

Craig: How do your funding programs work?
Gary: Our funding programs are grants that contribute to the costs of a specific project. Precarn will fund a certain percentage of a project and the company must provide matching cash or in-kind funding. Projects must be oriented around advancing research into commercial products. Project proposals must include collaboration with an academic research partner as well as an end user customer. We feel this model best contributes to successful commercialization by having the company to collaborate its research efforts with an academic institution to reduce the technology risk as well as work closely with an end customer to ensure it meets industry needs to reduce the market risk.

Craig: You currently have a program open for applications, can you talk about it?
Gary: The program we currently have active is the Technology Gap Assistance Program (T-GAP) for startup companies. This program is oriented to small companies and funds eligible projects with up to $75,000 or up to 65% of the project’s total costs. Projects need to be in the intelligent systems space and look to further research into technologies that can have commercial applications. Applications are due by Sept 2, 2009 and the program has a total of $1m of available funding.

Craig: How does the application process work?
Gary: Interested companies should reach out to Precarn to start a dialog on what they are looking to accomplish. They can contact Rick Schwartzburg. We can then give feedback if we feel their project is a good fit for what we are looking to fund with the program. Companies should then complete an application form and formally submit prior to the deadline. Once we receive all applications we internally review them to ensure they meet the program criteria. For the applications that meet the criteria, we distribute them to our expert advisory panel to review and rank them. Our expert advisory panel is made up of external industry and academic individuals that are knowledgeable in the intelligent systems space. Based on the ranking, we then award funding starting with the strongest submissions. In order to receive the funding, companies must finalize a contract with Precarn and submit a milestone based plan by which funding will be tranched based on project milestones. As part of the program requirements, Precarn has reporting and audit requirements the company/project must adhere to. From the application cut-off date, a chosen company can typically expect to receive cheques in a period of 3 to 6 months.

Craig: What separates the good applications from the rest of them?
Gary: Our goal is to ensure companies/projects we fund result in successful commercialization and advancement in the intelligent systems field. We look for companies that have a good understanding of their market-space and ability to execute on taking a research initiative to a commercial offering. We like to see initiatives that don’t just do research for the sake of doing research, but do research that will create products that have economic value. We also look for companies that understand the need and have developed good partnerships with academic institutions and industry.

Craig: The T-GAP program was last run last fall. What are some of the companies that received funding?
Gary: Some examples of the 12 funding recipients for the most previous T-Gap round include: Client outlook, Biopeak, Incogna, Nutri-Loc Ingredients, and OneLight.

Craig: In addition to the T-GAP program you also have other larger programs?
Gary: We run larger funding programs that are also open to larger companies to fund projects researching more complex problems. In these programs, the project duration is longer (18-24 months) and funding is larger at up to $500k.

Craig: When do you anticipate opening up new programs?
Gary: Precarn is at the end of its 5 year funding cycle. We are currently sourcing funding for our next cycle so until this is sorted out have not begun to plan out our next programs. We typically will do between 1 to 3 funding programs each year. Each year’s programs can have a different focus to remain relevant with times. We would anticipate that cleantech and energy efficiency would be key areas next year.

Craig: Gary, thanks again for speaking about Precarn with the StartupNorth readership today. It was very interesting to learn more about Precarn and the good work they are doing to support commercialization in Canada.

craig at mapleleafangels.com

My previous article on start-up funding sources covered the Investment Accelerator Fund. For the next article in this series, I will cover the National Angel Capital Organization (NACO). I recently met with Dan Mothersill, President and Bryan Watson, Executive Director from the National Angel Capital Organization.

Craig: Thanks for taking the time today to speak with the StartupNorth readership. To start, can you give the ’30 second elevator pitch’ on the National Angel Capital Organization?

Dan: Sure, the National Angel Capital Organization is the umbrella organization that represents angel groups in Canada. Its members are the 32 organized angel groups across Canada. NACO has various programs to help support and encourage angel investment in Canada such as:

• Support for angel groups to get setup and be sustainable
• Publishing best practices on angel investing and running angel groups
• Advocating to government for policy initiatives to support angel investing (i.e. grant money to support angel groups, tax breaks for angel investment dollars)
• Fostering co-investment across angels groups in Canada and other regions of the world

Craig: To clarify, NACO does not make investments in companies like your member organizations?

Bryan: Correct, individual angel investment occurs via our constituent groups and their respective members. If companies approach NACO looking for funding, I refer them to one of our member groups that is the best match in terms of location / industry.

Craig: For angels in Ontario, there has been an exciting program, the Angel Network Program, that has made a big change in the ecosystem around angel investing. Can you talk about this?

Dan: Angel investors play a critical role in helping fund early stage companies and helping them commercialize and advance to the next level. However, from an entrepreneur standpoint, without organized angel groups, it can be hard to find and approach ‘lone wolf’ angels that invest individually. Prior to the Angel Network Program, there were only a couple of organized angel groups in Ontario. Now there are a dozen that cover a range of geographic areas, industry sectors, and university affiliations. Having organized angel groups makes it easier for entrepreneurs to get matched with angel investors as the groups are setup to promote themselves, intake deal-flow, and present to members. The Angel Network Program is funded by the government of Ontario and provides grants to angel groups in Ontario to give funding to groups to setup and support themselves.

Craig: This is a great program, I know the board at Maple Leaf Angels really values the work NACO did to get the program established and it is a key factor in the successful operation of our group. Having established angel groups is clearly beneficial to entrepreneurs. Can you speak about the advantages to angel investors?

Dan: Research has shown that that angel investors that invest via an organized group get better deals and higher return on investments. Since the angel group is actively marketing itself, they generally see more deals and higher quality deals. Most angel groups have a selection committee that helps narrow down the deals into the best few that are presented to members. Since this selection committee is comprised of several members with a wide variety of professional expertise, they can better assess the quality of deals across a variety of industries. Similarly, when it comes time to do due diligence on a candidate company for investment, there is a greater chance that somebody in the angel group has direct industry expertise or contacts that can do a detailed assessment of the company. Compared to an individual angel that may only do deals in the industry they are comfortable with, by investing through an organized angel group, they can assess deals in a wider range of industries which will help them build up a more diversified portfolio.

Craig: What are some of the companies that have been funded by angel groups established by the Angel Network Program?

Bryan: Some examples include: Speech Bobble, Cubeit, Spartan Biosciences , and a StartupNorth favourite, Well.ca. In total, an estimated $13 million in investment has been made as a result of this program.

Craig: That’s great. In addition to the capital investment, have there been other advantages?

Dan: Yes, definitely. From the entrepreneur standpoint, the ability to get several angels invested in their company is extremely beneficial from a mentoring/networking point of view. Many angels are themselves cashed out entrepreneurs and are willing to lend their expertise and connections to help their investee companies. From the government standpoint, the success of the Angel Network Program has helped to showcase angel investment as a class and show the importance that angels play in the commercialization lifecycle. Angel investment in Canada totals over $2.2b annually.

Craig: Moving on, NACO has been spending a lot of time of late to foster co-investment across angel groups. Can you talk about why this is important?

Dan: With the challenges in the VC system, it has become harder for companies to get follow-on financing. This is bad from the company standpoint as well as the angel investor standpoint. Co-investment aims to encourage deal exchange between angel groups. Namely, if one angel group invests in a company and sees them make good progress, we want to enable deal flow to other angel groups for follow-on company financing. This is a win-win situation as other angel groups will see high quality deals since their peer angel groups already have a working relationship with the company and the original angels will ensure there is a follow-on source of funding for their portfolio companies.

Craig: What events has NACO held around co-investment?

Bryan: NACO held the first Canadian co-investment summit in November 2008. 25 companies presented at this summit and at last count over $2m of investment has closed as a result. NACO recently held a second Canadian co-investment summit in May 2009 where 15 companies presented. We will aim to hold 1-2 co-investment summits in Canada each year. To date our events have been in Toronto but we are looking to hold them in other cities next year.

Craig: How does a company get selected to attend a co-investment summit?

Bryan: We have two qualifying criteria. First the company must be nominated by an angel investor. This angel will appear at the summit alongside the company to give their perspective on the company and why they feel the company is a strong investment. Secondly, the company must have at least $250k of outside money (i.e. in addition to friends/family/founders). For our last co-investment summit we received 60 applications. A selection committee composed of managers of several angel groups reviewed the submissions and narrowed it down to the 15 that presented.

Craig: What future co-investment initiatives are planned?

Dan: In the fall, we will be expanding our co-investment initiatives to the US and Europe with co-investment events planned in Boston and London. In the future we are looking to expend this to other regions such as China and India.

Craig: Most companies in Canada probably look to the US as their key market outside of Canada. Can you talk about how the European co-investment initiative will be able to help companies?

Dan: As you mentioned, the US is an important market for an early stage Canadian company to target. This is relatively easy to do given the language, culture, geographic proximity. However, when expanding sales and marketing channels, to Europe, this gets harder. Our goal is to find established early stage companies that are looking to penetrate the European market. By matching with angels in Europe we can help enable this expansion through capital and more importantly knowledge/contacts that European angels can bring to support the company in launching into Europe.

Craig: We’ll look forward to seeing this grow and develop over time as it will be good to develop broader relationships across angel groups across the world. Lastly, NACO is holding their annual summit in October. Although more geared towards investors vs. entrepreneurs, can you give a preview of what is planned at this event?

Bryan: Our summit is run for angel investors with various speakers, panels, and educational topics to help angels understand the investment process and keys to being successful. Two confirmed keynote speakers include Basil Peters, who will talk on how to build (angel funded) companies for early exits based on his recent book , and by Alan Barrell, renowned UK Angel investor, who will talk on cross-border investment. We will also have a small co-investment track where 5 companies nominated by our member angel groups will be able to make an investment presentation.

Craig: Dan and Bryan, thanks again for speaking about the National Angel Capital Organization today. NACO has done a lot of great work to promote and develop angel investing in Canada and all of us in the community look forward to continued development of the various programs you have on the go.

craig at mapleleafangels.com

My previous article on start-up funding sources covered the Maple Leaf Angels. For the next article in this series, I will cover the Investment Accelerator Fund (IAF).

What is the IAF?
The IAF is a fund that was established by the Ontario government Ministry of Research and Innovation and is managed by the Ontario Centers of Excellence. It was put in place to help early stage companies that may be too risky for traditional funding sources to get funding and allow them to make progress to the next level where they can tap into angel/VC funding sources. In addition to providing capital to investee companies, the IAF also helps companies via its extensive connections and networks to help companies in areas such as opening sales doors, developing alliances, finding management talent, and recruiting board members.

The fund was founded in 2007 and has done 20 deals since inception. The fund is on track to do an additional 9-10 deals this year. Some companies the fund has invested in include: Regen Energy, Echologics, Nulogy, Bering Media, and Skymeter

How does this fit into Ontario’s commercialization strategy?
The IAF is one of 3 programs the Ontario government has in place to support innovation and commercialization in Ontario. The first program is the business mentorship and entrepreneurship program (BMEP) led by MaRS. This helps companies get started and provides guidance for entrepreneurs to launch their companies through mentorship and access to market research. The IAF would be the second leg in helping provide funding for early stage companies. The third leg is the angel network program administered by the National Angel Capital Organization. This helps establish angel groups in Ontario that will fund early stage companies and provides a network for access to follow-on capital.

What companies are eligible and how much investment can a company get?
To be eligible for the IAF, companies must reside in Ontario. Investment can be up to $500k and is usually done in tranches.

What are the deal terms?
Investment is made via convertible debt with a nominal equity kicker. A board observer seat will be granted to the IAF as part of the deal. The IAF is open to syndicating a deal with other investors.

How should a company go about applying?
Initial contact should be made through Trish Barrow. Once the application is received Trish will have an initial conference call with the company to review the application.

What happens after an application is submitted?
The company executive summary is reviewed internally and/or externally to assess the opportunity. Companies then submit a full business plan which undergoes detailed due diligence into the market, market strategy, intellectual property, technology, and management. Based on this, a recommendation is made by the IAF management team on investment.

Companies must then do an investment pitch to the IAF investment committee. This committee is made up of IAF management, VCs, and angels. The committee guides the IAF management committee on the investment and any conditions for investment. This process also provides the investment committee with a window into quality deal flow for potentially follow-on funding.

How long does the process take?
The process takes between 3 to 6 months until the company receives a cheque. Timeframes will be dependent on what stage the company is at, if they have materials readily on hand required for the due diligence process, etc.

What criteria are used to select which companies receive investment?
As the IAF was established by the Ontario Ministry of Innovation, it is not purely ROI and profit driven like a VC fund would be. Companies successful in receiving funding typically:

• Have a viable addressable market of at least $20m that the company can add unique value
• Have strong, defensible intellectual property
• Are in a position where investment by IAF can be meaningful in terms of helping the company progress and get to a stage where they will be attractive to next round angel/VC funding
• Have high risk, disruptive technologies that will advance innovation in Ontario
• Will create jobs in Ontario

The focus of the fund is on innovation and commercialization so companies with potentially disruptive technology that have strong intellectual property are the best candidates. The fund is looking to help companies develop their technology to the next level (i.e. could be a beta product, could be a pilot project) so the technology is further proven and subsequent angel/VC investors can look to continue funding the company. In other words, the fund is looking to bridge the gap between early R&D and angel/VC fundable companies.

Although the fund is not purely ROI driven, just like any fund it as limited resources and the fund’s management needs to ensure the companies they invest in will be the ones that succeed and become successful companies. As such, companies must be able to show a clear plan of progression with concrete milestones as to the progress they will make after investment in advancing the company to the next stage.

craig at mapleleafangels.com

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

Thanks to all that have taken the time to participate in the funding survey. Results of the survey can be viewed by clicking here for powerpoint or by clicking here for pdf.

I’ll have more in future posts on addressing some of the results of the survey and some of the findings that have emerged/questions that people have on the funding process.

Thanks to all that have filled in the startup funding survey (see this article). The survey will be closing this Friday and I’ll post the results next week. So if you have not already filled it out and would like to provide your input, click here to start the survey.

So far, here are the results for the question on ease/difficulty of finding funding.