Having a standard application format helps ensure that screeners have easy access to the information they need. 70% of US Angel groups use Gust.com, which provides an Entrepreneur Application feature to help potential investee companies ensure they submit information in an appropriate structure (Payne). Using Gust.com, Angels can automatically screen out any deals that fall outside of their investment range, industry sector or location. Only 12% of US Angel groups will accept a traditional business plan for this phase of the screening process (Mirabile). Angel Investors Ontario has created a virtual joint-screening process that lets potential investee companies pitch to multiple Angel groups at once. Critical Factors for Venture Success Based on analyzing over 20,000 early-stage, pre-revenue ventures, the Canadian Innovation Centre (CIC) developed a complex, 42-factor Critical Factors Assessment (CFA) that predicted the likelihood of either failure or success. This instrument was validated by completing surveys five years after the assessment to determine the commercial success of the product or service (Åstebro & Elhedhli). The tool was found to be more than 82% accurate at predicting success and 84% accurate at predicting failure. Factor Analysis (an analytical procedure for distilling and grouping information) was used to simplify this assessment tool, and eight higher-level critical factors that embedded the 42 factors were identified. Failure of any single critical factor is sufficient to cause overall failure. These eight factors (listed below) along with investor–opportunity fit, are found to be a reliable tool for use at the initial screening stage. (Maxwell, Jeffrey & Levesque)
Critical Factor
Fatal Flaw
Product adoption
No evidence potential customers likely to adopt
Route to market
No clear channel to market
Product development status
Much more research and development required
Market potential
Market size too small
Protectability
No barrier to entry for competitors
Customer engagement
Features do not match market need
Relevant experience
No relevant entrepreneurial/business experience in the team
Financial model
No clear path to profitability
It is interesting to note that the CFA was originally developed as a diagnostic tool for entrepreneurs. While Angels will reject an opportunity for a failure in a single factor (because they do not have the time to fix it), the identification of specific problems can help focus the attention of the entrepreneur on the factor(s) they must fix before they will get investment from an investor. — Dr. Andrew Maxwell , Chief Innovation Officer, Canadian Innovation Centre
How to Achieve Good Returns
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