3: Four Types of Investors Development Venture Growth Established Seed & Angel Early 1st Stage 2nd Stage Mezzanine Equity, Debt, Derivatives Proves a concept Product Development Commercial Products and Sales Expansion Expansion Consolidation Pre IPO Recapitalization Buyout Slower Growth Not yet profi table Not Yet Profi table Not Yet Profi table Not Yet Profi table Profi table Revenue Maturity Competitiveness Startup Expansion Consolidation Corporate Mature: Liquid Markets $50, $100k, $250k to $750k $1M–$5M $3M–$50M $3M–$100M $3M–$100M Source: Adapted from GrowthWorks’ Web site The Food Chain: Match Your Business with the Right Investors 73 Tough Angels Perhaps your product development is nearly complete, a few customers are buying, and there is a sketchy business plan. If you are at the stage of asking, “How do I? Who Do I? Where do I go?” then you may be ready to try approaching an angel. No, this is not some seventies TV show. Angel investors give you money out of their own pockets. Th ey are high net worth individuals who want a piece of your longterm dream- that growth that will make you rich and put you on the cover of Profi t magazine. Why go to angels? Th ere are many more benefi ts (besides piles of cash). Angels will be excited by your business and are also a wealth of knowledge and reallife experience. Most importantly, they have the drive to help your company grow. Angels off er more than money-they are the coach, the cheering squad, and will be tough on any entrepreneur who probably has a bit of an ego. An angel has been around the block and earned his wings! Th ere are angels all around and you fi nd them by talking to your suppliers and downstream to customers. Mike Lazaridis founded Research in Motion in 1984 and got going with early funding from Innovation Ontario-a government funding program which is now closed. Lazardis also asked upstream to his customers, one of whom was Jim Balsillie, now the coCEO of RIM, who bought shares early when revenues were $500,000. Balsillie brought his Harvard MBA skills and narrowed BlackBerry’s focus to be “the wireless wallet,” an absurd dream back in 1992. Balsillie is the angel who stayed. Seed and StartUp Seed is for when your company is prerevenue, alpha testing in Saskatchewan, beta testing, or commercializing. Early stage is when you have a few clients paying for your idea. You might have little more than a prototype and need to do marketing and more development work. Th is is the time to seek seed funds or socalled “embryonic funds.” Governmentbacked funding can also become available through the Business Development Bank of Canada (BDC) if you are willing 74 CHAPTER 4 to do the paperwork and wait a long, long time for approval. It is well worth the work though. If you have any clients outside of Canada, swing by Export Development Canada (EDC), which backs up bank loans and is innovative in its lending practices.