C HAPTER 5: B RIDGING T HE G AP : H OW T HE P RUDENT A NGEL C AN S URVIVE T HE D OWN -R OUNDS
Slowly, the market is changing. At a recent venture fair, several major VCs made it clear that they were not interested in seeing companies project revenues of $100 million within five or seven years of start-up. They even suggested that their earlier demands had resulted in a whole generation of managers making unrealistic projections just to get on the radar screen. Another venture fair conversation featured a VC who had left the industry because he felt that the VC model resulted in too much money coming out of early-stage companies too soon. The prudent angel encourages companies to provide realistic valuations and projections. PICK YOUR PARTNERS, BUT…. There are good and bad VCs, and most angels would rather deal with VCs who never participated in the scurrilous squeezes. However, in this changing market, angels must be willing to look past VCs’ recent behaviour, because, realistically, there isn’t much choice. In tough times, any VC who is willing to get involved in a project and who has money is a good candidate for later round financing. That being said, however, angels need to look to themselves. Based on their years of experience, relative freedom, and closeness to the investees, it is their responsibility to behave like the professional investors they are. That means building on their knowledge and experience to establish workable term sheets that provide reasonable protection. It means structuring various types of investment arrangements, creating measurable and monitored goals for investments and holding themselves accountable for the performance of their money. Angel investors cannot sit back and blame management, the VCs, the investment climate, commodity pricing or the telecom upheaval. Instead, they must realize that they have at their fingertips the resources to make good and profitable investments. What resources? At the very least, they have each other in Canada’s increasingly active and organized angel network. And they have the experience of working with their fellow investors – the VCs and the brokerages. They need term sheets. They need regular meetings with management. They need to be kept in the loop and to keep themselves informed. They need metrics. They need to track investments against stated and communicated goals. They need to know how to say “no”. They need an understanding of business models, business management techniques and valuation criteria. Because, let’s face it — if they had invested as professionals in the first place, it would have been much harder to squeeze them.
The prudent angel treats his or her investments as a business.
As they develop national expertise, angels need to focus on ensuring a better and more business-like working relationship with both investees and other investors. This will go a long way to helping bridge the gap between angel investors and venture capitalists.
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