C HAPTER 6: T HE S YNERGY B ETWEEN A NGEL N ETWORKS A ND C ORPORATE V ENTURING
be solved by a start-up versus a current supplier. By partnering with a CVC, angels can make better investment choices because they will better understand time-to-revenue considerations and potential competitive threats. Second, Angels can obtain customer feedback to improve their due diligence before an investment and product development insight after an investment. Because of the strong links to its parent company, a CVC can solicit feedback from the parent’s technical and product development personnel. While CVCs don’t do this frequently, the angel investors that do obtain feedback through their CVC partner can benefit tremendously from improved due diligence (pre-investment) and greater customer involvement during product development (post-investment). The start-up can also improve product development through the corporation’s involvement and better identify product issues and deficiencies. Third, angels can employ “other people’s money” to co-invest and gain another source of follow-on financing. Partnering with a CVC can also create additional opportunities to attract further funding. For example, an angel network could create a seed fund and accept external venture capital financing. The California-based Band of Angels has created a fund that co-invests in deals that are subscribed by its members. Not only does this provide additional financing, it acts as a bridge to subsequent follow-on financing. In some instances, the angel network can also leverage non-equity project financing offered by some CVCs. For example, in Canada, Bell Mobility’s Accelerator Fund offers start-ups project financing for compelling wireless concepts. Fourth, angel networks can improve a start-up’s credibility through a CVC and corporate association. The angel network and CVC partnership can lend a start-up a higher degree of credibility than it could otherwise achieve. In particular, start-ups co-funded by a CVC and angels have more credibility when approaching larger clients. An example is Telus Ventures’ backing of Spotnik Mobile, a Toronto Wi-Fi service provider. This backing helped Spotnik to compete for many contract opportunities such as Toronto’s Pearson International Airport. Spotnik’s advisory board includes senior Telus Mobility management. Finally, the start-up company can leverage sales channels and generate sales more quickly. Through its relationship to a larger corporation, the start-up can sometimes obtain an immediate sales channel to distribute its product. This channel relationship may also extend to other vendors and partnerships, allowing the start-up to leverage a larger company’s sales force to obtain revenue and sales. This is very important because follow-on investors are looking for tangible signs of market demand in the form of revenue. FINDING COMMON GROUND Given the foregoing advantages, it would seem natural for angel networks to want to work more closely with CVCs to mitigate risk, diversify and accelerate early-stage angel investments. However, finding common ground between angel networks and CVCs may be challenging given the small number of active CVCs in Canada and their limited interest in seed-stage funding. In addition, the strategic terms demanded by CVCs may detract from the start-up’s focus. In Canada, the potential for CVC angel network partnering is limited. There are only a handful of companies that have formal or informal venture arms and they tend to focus on three sectors: telecom, energy and financial services.
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