Entrepreneurs with Money – Angel Investing 101

VA Angels’ CEO Randy Thompson writes a column for the Calgary Herald. This is one of those pieces.

January 26, 2013. 10:59 am • Section: Business, Technology

So I’ve been running an Angel group here in Western Canada for almost a decade now, and its interesting still how individuals become members of our group. When we look at the potential angel pool in Calgary it is staggering.  With 2400 millionaires (#1 in Canada on a per capita basis) in Calgary you would think the City was bursting at the seams with wannabe dragons looking for the next big idea. Sadly, it’s not the case for non energy entrepreneurs, although I also get tired of hearing the “there’s no money in Calgary” drool that is pervasive in the startup community.

Angel 101

For those not in the know, an angel group is a “Dragons Den” group that meets often to look at supporting entrepreneurs. If you notice I used the word support instead of finance, because building companies takes a lot more than just what you see on TV.  I’m currently in a number of companies, some since 2005, and I would love to tell you that it has been “ a throw money at it and watch it grow” strategy, but that is not the case. There are angel investors that have taken this approach with some success, but we have found there is almost a universal requirement to actively engage with the companies- being on boards, providing rolodex, time, and of course capital as required.

Angel returns are amongst the best among the various asset classes, but it’s the amount of work required to grow a “startup” company that scares most of the 2400 potential angels away. The super wealthy who invest are known as –who knew- super angels, but they are the marquee names Calgarians already know and probably have heard about from the companies they built or sold. The issue for the super angel is the staggering amount of deal flow they see on a monthly and even daily basis, so the amount of time they have to babysit the earliest companies is limited. Thus, they don’t participate except through their wealth office or internal networks.

Being an Investor vs Being  an Angel

The average millionaire is what makes Calgary a great place to start a company. This group doesn’t participate as the lead “Angel”, but are a phenomenal network of secondary investors who can invest in the angel “round”, who can support both the angel and the startup (I’ll discuss the perfect angel deal and deal structuring in the next article). But truthfully this group is usually coming into a deal with a friend, and they don’t want to work on building the companies they invest in. These millionaires will go the less risky paths, seeking real estate or other standard wealth management products. And if they are millionaires from the service sector (lawyers/investment bankers) well they quite frankly don’t have a track record of participating in risk, so its rare they go the angel route even as the supporting investor. (yes, dear reader I know the TV exception you are going to mention here). This group is usually the reference though- the guy who knows a guy who’s looking for money.

Entreprenuers With Money

For the millionaires that become angel investors there is a process, they don’t become Angels overnight. I think about my own  “non investing” background, going from politics to starting an Internet company with my measly B.A. But really, if you think about how these people became millionaires I would contest that very few of them have MBA’s and/or took finance, but in fact made the money through their own business or the family business. They in fact aren’t investors at all- they are entrepreneurs with money. And ironically, this is what makes them perfect angel investors!

These entrepreneurs with money spent a career taking the risk out of a business they owned. They learned cash management, the value of a long term relationship and a handshake, how a value chain works and how many players are in between your product and the Best Buy shelf. They managed lawyers, accountants, and learned about corporate governance and raising capital. As a startup can you imagine how valuable an individual like that would be in your company.

So the takeaways

Calgary, and I’m sorry Flames fans, Edmonton too, make Alberta a great place for starting companies. There are Angel investors who want to help entreprenuers build companies, and there are millionaires who could support the entrepreneur by working with the Angel investor with capital. It is the start of an enviable ecosystem, a word we use for places like Silicon Valley. Here at home, we need to do a better job of finding the 2400, and providing them opportunities far more lucrative and exciting than another real estate play.

There is a new group in Alberta called the A100, entrepreneurs with money learning everyday to become better angels, there is my group VA-Angels and there is Alberta Deal Generator.  Look us up, email me, get involved. Talk to your accountant or lawyer about being involved in startups as an investment. It’s high risk, but the right entrepreneur, guided by the right angel investor, can make for a great return opportunity!

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