In Conversation with Angel One
March 3, 2022
What is your Name and Title?
Neil Wilkinson, Managing Director at Equation Angels. Equation Angels curates deal flow and provides services to Angel One and other angel groups in southwestern Ontario.
What is Angel One Investor Network?
Angel One Network is a group of about 30 high net-worth individuals who have interest in investing in early-stage technology-based start up companies. Those companies are located primarily in southwestern Ontario but can be from anywhere in North America.
Angel One Network is a founding member of Equation Angels along with angel groups in Kitchener and London and, more recently, Windsor. These four groups came together to create sustainable, modern angel investor network.
Together, under the Equation banner, we have about 125 investors. This means more capital on the table to support more founders. This also means consolidated screening and application process, check out this link. Before Equation Angels was formed, companies would have to apply to 4 different angel groups and make 4 different pitches to try to get their funding. Now, it is one application pitched to all 125 members in one go.
How do you find and get in front of the deals you want to be a part of?
This is another advantage of being part of the bigger group for Angel One. As Equation, we essentially have 4 business developers in each of the 4 communities that we currently operate in. Here, at Angel One, the Chapter Manager, Suvid, is the business developer, and the fact that we co-locate, right here with Haltech at TechPlace is really important. Suvid is meeting the founders that are working out of TechPlace on a regular basis and the same happens in the other communities.
We also engage with the early-stage innovation ecosystem through all the regional innovation centres, some private accelerators, and venture studios. We attend various pitch competitions, and as one of 13 angel groups in Ontario, we collaborate well across the groups and through Angel Investors Ontario (AIO), we share opportunities.
We find interesting companies for the members to look at, we pre-screen them to make sure they meet criteria the angels are looking for. Then the Equation group comes together once a month and sees pitches and presentations from the companies and decides whether to invest in them or not.
What do you look for in a start up as you evaluate it for a potential investment?
Angel One’s investment thesis is that we are looking for technology, or technology-empowered start-ups that promise to deliver better than average returns into a large market opportunity. Typically, a billion-dollar market opportunity is what we are looking for.
When it comes down to the evaluation, each angel makes their own decisions as to what they are investing in. They all have their own investment thesis, that is a subset of ours. We have some members that will only invest in companies that have some degree of social good, B-Corps, as they are sometimes called. Some angels are particularly interested in women founders. Some investors look only to specific industries or sectors.
The fundamentals behind any deal come down to four T’s; Team, Technology, Traction and Timing;
- The team- have the founders assembled the well-balanced team that addresses the technical and business side of the company?
- The technology – Is it good technology that will do what it says it’s going to do? Is the IP protected or protectable?
- The timing- is this market ready for this product or service?
- Traction- are there early signs of product-market-fit?
What are the red flags for an angel investor?
It comes back to those four T’s. Is the team is unbalanced somehow. A common one we see is a technical founder who is very focused on the product, on the technology, but doesn’t understand the business landscape around it, or how to sell the product, that’s a red flag.
The technology is too unproven, too early stage, which ties to poor traction. While it looks like a good idea on paper, there are no customers, no paid trials going on or no users on the platform, that would indicate poor product-market fit. That would be another red flag.
And then the right timing. COVID is a great example. If the idea was born because the founder saw a challenge that came up because of COVID but by the time they have had a chance to develop it, the COVID driven need could be over.
What are some common post-investment mistakes made by founders?
For founders, I’d say not keeping open communication with your investors. The investor should not have to pull information out of you as to activity within the company and achieving (or missing) milestones.
The angels want the company to be successful, the advice they are giving is based on their past experiences with start-ups. Listening to them and working with them is really important. Companies that shut down and ignore their investors are not going to fare well.
And mistakes made by investors?
From the angel’s side, I would say, not understanding the company or the market and pushing the company to use KPIs or metrics that are not appropriate for long-term success. For example, revenue is not always the be-all and end-all at the earliest stages. If the company is building a marketplace, it must build both sides of the marketplace before you can get reliable revenue.
Pushing the company to have revenue when they don’t have enough users on the platform may not be particularly helpful to the company. If the angel understands what the appropriate metrics are for that company, then everybody will have success.
Are there any industry trends that you are seeing?
2021 was a hugely successful year for Equation Angels, our members invested $10.1M into 27 firms and saw a number of good exits.
From a trend’s perspective, valuations of the companies have been creeping up. There are couple of reasons for that. Venture capital firms are reaching further into what would be the traditional angel stage. You see seed and pre-seed venture funds now. I think these Venture funds are helping drive the valuations up, particularly coming out of the US as the US is looking into Canada as a source of start up companies.
Overall, there seems to be a lot of capital available which is likely contributing to the higher valuations too, it’s a competitive market.
Are there any verticals that are more prominent now?
Anything health- tech and medical-tech related! Particularly, in the shadow of COVID, we’re seeing lots of start-ups in these verticals right now. And it is back to that earlier comment, businesses that existed pre-COVID, and have been accelerated by COVID are positioned to do well. Companies that were created because of COVID, I fear little bit for some of those companies around the timing, the market opportunity may have passed them by unless they have broader portfolio of product and service offerings or some other opportunities that are not COVID-dependant.
Many of the health tech opportunities we are seeing are around the digitalization of healthcare. To me, this is one of the verticals that was accelerated because of COVID, but the impacts will be permanent. Both healthcare providers and patients have seen the efficiency and user-friendliness of telemedicine and I think this will only increase in the future.
Besides providing capital, what additional support do you offer as an Angel investor?
Angels invest in companies for two primary reasons-one is the financial investment, and they are clearly looking for some return on that at some point in the future. The other reason is they are all successful businesspeople who want to be involved with start-up companies. Some of them are still active in the businesses they have founded and grown. Some of them are retired and the appeal of angel investing is that they get to pass on some of their knowledge, wisdom, or experience to help these start-up companies grow. As a founder finding the right angel with the right experience that you are looking for is important. It’s not all about the money.
It is important, if you have weakness in your team, on the sales and marketing side, for example, find an angel that comes from that background. Angels will often negotiate a board seat as part of the deal, depending on how much capital has been invested. To the founder, I would say yes, take that, you’ve got access now to someone with great experience on your team.Long-term vision for your company?
We want Innovia GEO to become the premier provider of clean and renewable geothermal heating cooling systems for low and mid-rise buildings across the world.
Describe your members. What kind of person would make a perfect angel investor?
Our members come from all walks of life. We’ve got a group of members that you would call the traditional tech founder group that have successfully exited from the types of companies that they now invest in.
The other group are professionals – lawyers, bankers, doctors, those traditional professional industries that are looking to diversify their portfolio, get involved with start-up companies and hopefully invest in the next unicorn.
We are seeing some younger than traditional angels starting to get involved too. With some of these fast-growing start-ups these days, founders are able to exit their companies in their 40s and in some cases even in their 30s. They have capital and still enjoy the thrill of the start-up. They want to get involved without the day-to-day grind of start-up life.
We also have some institutional, or corporate members. These are family offices or investment firms that are interested in seeing deal flowing in these early-stage companies.
To be an angel, you must be an accredited investor, which is a self declaration. An accredited investor is defined as
- an individual who, either alone or with a spouse, beneficially owns financial assets having an aggregate realizable value that before taxes, but net of any related liabilities exceeding $1,000,000; or
- an individual who, either alone or with a spouse, has total net assets of at least $5,000,000; or
- an individual whose net income before taxes exceeded $200,000 in each of the 2 most recent calendar years or an individual whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the 2 most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year.
What new and exciting things are you working on?
For Angel One, the new and exciting thing is being part of Equation Angels and having Neil Wilkinson on the board as the new Managing Director (laughs). Over the last 6 months, Equation has set the groundwork for very successful 2022.
We are working on continuing to strengthen our deal flow process to ensure our members get to see the best, most investible companies, not just in southwestern Ontario but from across North America. We are also working on ensuring we deliver great value, to our members, to the founders we work with and to the sponsors that support us.
I think the thing I am most excited about in the coming year though is getting back to in-person meetings and events. It has been a long two years on virtual platforms and while there have been advantages, like broadening our reach beyond southwest Ontario, there is nothing like being in the same room as fellow investors, enjoying a drink and a meal while watching entrepreneurs pitch live on stage.
How can anyone reading this assist you/be part of Angel One network?
If people are interested in becoming investors – reach out to Suvid Ajmera, Chapter Manager at Angel One Investor Network: email@example.com
If you are founder and are ready to seek angel investment– Neil Wilkinson, Managing Director, Equation Angels: firstname.lastname@example.org
If you are interested in supporting Angel One and/or Equation Angels- we seek sponsors for events and I’m open to discuss sponsorship opportunities- Neil Wilkinson, Managing Director, Equation Angels: email@example.com
One word that describes TechPlace?
deal. As angel group that is looking to engage with start-ups, why not have your office in the middle of the building surrounded by start-ups. Between the companies that are resident at TechPlace, and companies that come in because of the events you host, it’s the ideal place to be for us.