Two weeks ago I began a series of posts on Angel Investing. In the first post, I reviewed sources of funding for early stage entrepreneurs by stage.
In today’s post, I address the question:
- What is the process of raising money from angels / angel investing groups?
The process I describe is based on the VANTEC angel group (of which I am a member) as well as e-Fund (a vehicle through which I invest in startups). This process will be similar to what startups experience with other angel groups.
Before proceeding further, it would be useful to provide a little more information on VANTEC and e-Fund. The following is taken from their respective websites:
“The VANTEC network consists of angel investors and other early-stage investors who meet monthly to hear a selected number of short business presentations by nascent technology entrepreneurs. The objective is to make initial introductions with a view to having interested parties subsequently meet in private.”
In other words, VANTEC acts as a funnel to allow its member angels, syndicates of angels, and angel funds to identify deals to take forward to the due diligence process.
“E-Fund is a registered venture capital corporation (VCC) with a focus on market-ready, British Columbia based, technology companies.”
The graphic below is a free to share communication tool developed by startup commons to “help understand the startup journey, identify key stages and to help develop startups from ‘idea to business’ and from ‘founding team to organization’”. I have taken the liberty to use this graphic and to overlay the typical sources of funding at each stage. I have also overlaid the stages of startups that VANTEC members and e-Fund would typically invest in.
As the graphic indicates, members of VANTEC may consider assisting and/or investing in exceptional companies in the Stage -1 Concepting to Stage 1 Validating stage. e-Fund, on the other hand, invests in Stage 1 Validating to Stage 2 Scaling companies. In other words, e-Fund typically is looking for established “market ready” companies that are ready to scale, while VANTEC members maybe willing to consider companies still developing their MVP.
Presenting at VANTEC
The graphic below describes the process a startup takes with VANTEC towards receiving funding.
To be invited to present a 90 second preview presentation at VANTEC (#2 above), an entrepreneur has to upload their pitch presentation and company information to Gust. The presentation is reviewed by members of VANTEC and is accepted or rejected. The filter here is typically very broad. Alternatively, entrepreneurs can enter to practice their 90 second pitch at VANTEC Burnaby or VANTEC Off Broadway, two pitch practice events organized by VANTEC in conjunction with Elevator Ventures. The audience at the pitch practice events vote and the top 3 get to pitch at VANTEC. Whether you apply through Gust or not, I highly recommend that you practice your pitch at VANTEC Burnaby and/or VANTEC Off Broadway. At these events, you will receive excellent feedback on your pitch (not your business) from experienced investors and industry professionals.
The 90 second preview presentation (#2 above) itself is just that. The presenter has a minute and a half to introduce the opportunity and their business to the audience as well as to make their ask. It is the equivalent of an elevator pitch. Note: VANTEC is very strict with time limits. If they are lucky, Mike Volker, the founder of VANTEC who also moderates the events, may give a presenter an extra 5 seconds before he politely asks them to head back to their seat. Member angels vote on their top 3 90 second previews.
Pitching your startup for 90 seconds at the full VANTEC meeting is very useful in of itself. Based on your 90 second pitch, an angel may invite you to a coffee to learn more about your business. While they may not invest immediately, you will need an angel sponsor to make it to a VANTEC full presentation (#4 above) so being invited to a coffee meeting is an excellent opportunity to find your angel sponsor to proceed to the next stages (#3 and #4 above). Also, angels have more to offer entrepreneurs than funding alone. They also can assist entrepreneurs with sage advice as well as access to their (often vast) networks.
To do a full presentation at Vantec (#4 above), you have to be invited to a pre-screening of your full presentation first (#3 above). How do you get invited to the pre-screening? By doing a 90 second preview at VANTEC and scoring well. If you pitched at a pre-screening event previously but were not selected to pitch your full presentation to VANTEC you may be invited back to the pre-screening event at a later date.
At the pre-screening event, a panel of VANTEC members and network sponsors review 6 to 7 candidates and select a maximum of 4 companies to pitch Full Presentations at the next VANTEC meeting. The startups making it through to the Full Presentation are typically informed within 24 hours of the pre-screening event. They will need to arrange a sponsor, typically an angel who has invested and / or advised them, to introduce them at the Full Presentation.
The Full Presentation itself has the following format:
- The entrepreneurs sponsor introduces the entrepreneur and the startup for 5 minutes.
- The entrepreneur has 10 minutes to pitch including Q&A. Best practice is to pitch for 5 minutes and take questions for 5 minutes.
- The entrepreneur leaves the room and the VANTEC members provide feedback to the sponsor.
- Members score the presentation on multiple criteria.
Note: It is recommended to adhere to the VANTEC presentation guidelines for best results!
Following making a Full Presentation at VANTEC, individual angels and / or angel syndicates and / or representatives from angel funds may contact the entrepreneur to find out more information about the company and / or start the due diligence process. Note: due diligence itself can take time depending on the level of preparedness of the startup seeking funding. From the e-Fund website, the ideal due diligence process would progress something like this:
- Preliminary DD interviews and data gathering: 1 to 2 weeks
- Complete technical & business review: 1 to 4 weeks
- Detailing terms and conditions: 1 to 4 weeks
- Finalize investment: 1 to 2 weeks
If everything goes super-duper well, as soon as 1.5 months after a 90 second preview an entrepreneur could close an angel funding round with VANTEC members. More realistic is 3 to 4 months and 6 months is not unusual.
The process with receiving funding from e-Fund is outlined on their website:
As you can see, e-Fund uses VANTEC as its deal flow funnel. As such, the process to get to due-diligence (and funding) is the same as VANTEC. The only difference is item 2 in the above table, which outlines criteria for companies looking to receive funding from e-Fund. These criteria (e.g. proprietary technology, strong barriers to entry, investment by F&F and preferably other VCCs) may be stricter than an individual angel’s requirements. Also, note that e-Fund only invests in companies that are incorporated in BC. Part of the reason for this is to benefit from the small business venture capital tax credit that is provided to individuals/corporations that invest in shares of a registered venture capital corporation or eligible business corporation. The tax credit is currently 30%.
I hope the above is useful to any young / first time entrepreneurs considering raising funding with VANTEC / e-Fund. Feel free to comment and/or reach out to me should you have any queries on the process.