A Practical Guide to Angel Investing (2nd Edition)

One of Several Available Screening Tools The Critical Factors Assessment (CFA) by the Canadian Innovation Centre is an online tool that entrepreneurs can use to help with screening. The CFA measures 42 factors that are categorized into the “8 Biggest Hurdles for Venture Success” (see www.innovationcentre.ca). The cost is $1,500, but those who have used it say it is an effective tool, not only for screening, but also for structuring discussions, supporting identified weaknesses, identifying key term sheet issues, and enhancing the ability to share information and syndicate deals.

2.3 Managing Deal Flow If your Angel portfolio target is 20 investments over four years, that means you might see over 100 investment opportunity summary sheets, watch 80 investment presentations, and select 25 for due diligence. Each due diligence team might consist of half a dozen different co-investors, and each company will produce documentation that includes contracts, plans, sharecap tables, financial scenario analyses, sales pipeline forecasts and employee resumes. That’s a lot of information! Most beginning Angels don’t use any specific software tools but then gradually adopt a tool here and there as their more-experienced co-investors pull them into the systems they are using. Everyone seems to have their favourites. Popular deal- flow management tools include ProSeeder, Gust, Slack, LeanMonitor, Wunderlist, OurCrowd, Intercom, and Captable.io. (NACO 2015 National Angel Summit, Using Technology to Support Angel Investing ) 2.4 Using an Angel Fund to Augment Your Individual Investment Portfolio Matt Mastracci offered deeper insights into building an Angel investment portfolio during the 2016 NACO Western Regional Summit in Winnipeg. He used publicly available historical data on startup investment outcomes and ran a Monte Carlo simulation to model Angel investor ROI for different portfolios. He found that the riskiest Angel portfolio is when there are less than eight investments – what Matt calls the “Zone of Death” – when you have an over-90% chance of getting zero return from your portfolio. He offers the following advice when building your portfolio: • Focus on increasing the number of cheques you write. The goal is to get to at least 10 investments (20 is better) before you are really investing instead of gambling. The larger the portfolio, the lower the risk, so it’s better to write a lot of small cheques then a few large ones. • Matt also found that quality of deal flow is directly proportional to the number of cheques you write. Unless you are known to be an active investor, you won’t get the best deals. So joining an Angel group or fund is a good way to gain exposure.

How to Achieve Good Returns

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