Funding startups ‘a bit of a lottery’: How one angel investor has perfected choosing which companies he invests in

Funding startups ‘a bit of a lottery’: How one angel investor has perfected choosing which companies he invests in

Armina Ligaya | 30/09/13 9:30 AM ET
Colin Wyatt calls his first foray into the world of angel investing “a wipeout.”

The National Angel Capital Organization (NACO) serves Canada’s angel investor community, with a mission to scale up its size and scope. To that end, it is set to release a report on the state of angel investing in Canada. While I don’t know what this report will say, I can guess it will argue investing levels are not even close to where they need to be to allow Canada to advance its early stage entrepreneurial investment opportunities. It was the late 1990s, and the Canadian technology executive decided to invest $150,000 in a U.K.-based startup called Imagine. Their model was to put kiosks in retail stores which would recognize customers by their mobile phones and print out physical coupons based on their shopping preferences, he said.This was during the Internet boom at the tail end of the decade, and its then $1.5-million valuation didn’t seem out of place for investors.

“It was not successful,” said Mr. Wyatt, who has held roles as president and managing director of Lotus Development in both Canada and Britain. “Technology overtook us… At the end of the day, with the collapse of the Internet bubble, we went along with it.”

His poor start did not deter him from exploring other investments. In 2001, Mr. Wyatt invested in a video-streaming platform for the corporate world — which he calls a precursor to YouTube — called Active Web Technologies. It was acquired within the first year by a private equity firm. While he won’t disclose how much he invested, he made his money back 1,000 times over, he said.

Mr. Wyatt says he recognizes that angel investing is “a bit of a lottery.”

“I’m doing this basically for just the enjoyment of working with smart companies,” he said. “And it keeps me current on technology.”

Mr. Wyatt now makes investments through Angel One Investor network, an angel investing group based in Oakville, Ont., with which he is also a board member. He is one of a growing number of angels flocking to such groups in Canada, which allow investors to invest smaller amounts of money in a deal, in conjunction with other angels.

In 2012 and 2013, Mr. Wyatt invested in two companies through Angel One: $75,000 in Breakeven Inc., a specialized software platform for non-profits, and $25,000 in YouBid Local, an online portal to host estate sales and auctions.

He looked at 100 companies himself, but it was a huge undertaking. And after returning to Canada following 20 years in Europe, it was tough to get plugged in to the local market again. “I tried to do the deals all myself, which is almost impossible. The Canadian market, it’s quite small and very, very difficult to get exposed to deal flow,” he said. “That’s why the angel groups are so valuable.”

Before investing in any deal, however, the first thing he looks for are people who are open to being coached. He said smart and stubborn visionary chief executives — such as Apple’s Steve Jobs — who don’t listen to anyone’s advice and still succeed are rare in his experience.

“The best deals that I’ve seen or worked with are where the founders are willing to listen to the investors and not mind too much if the investors take an active role,” Mr. Wyatt said.
The level of his involvement in an investment varies, but he speaks to the chief executive of Breakeven Inc., at least once a week, he says.

Secondly, there needs to be a clear market for the product or service — particularly in Canada where there is a smaller pool of potential funds, he said.

The $165-million dollar financing round that Vancouver-based social-media startup HootSuite raised in August is hard to come by, he said. “If you’re an entrepreneur looking for angel funding, it’s going to be a fairly limited amount of money you can get… There’s going to be a lot less money to spend. So having an effective, survivable go-to market strategy is very, very important.”

As well, he expects entrepreneurs who approach him or the angel group to have a “crisp business plan” and presentation. Most of the startups that present at Angel One’s regular investor meetings have been heavily screened before they even get to pitch their wares to those who can write cheques.

Mr. Wyatt recommends taking advantage of the many accelerator centres for entrepreneurs, such as MaRS Discovery District in Toronto or Communitech in Waterloo, Ont., which can help entrepreneurs polish their proposals. “You basically get that one shot,” he said. “It’s a little bit like speed dating, where you get 20 minutes and people probably make up their mind in the first few.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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