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Every successful startup has a team of individuals at its core, and their dynamics can determine the fate of the venture. In our previous blog, "Why the Founding Team Takes Centre Stage for Angels.", we talked about why founding teams are crucial for angel investors, and how they play a significant role in deciding whether to invest in a startup. Angel investors understand that investing in a startup is not only about a great idea but also about the people driving that idea forward. They know that a startup's success often depends on the founders' capabilities and the cohesion of their team. Evaluating a startup team is both an art and a science, and it involves looking beyond resumes, understanding collaboration intricacies, and appreciating the stories that shape founders' visions.

This blog takes it a step further, exploring the qualities that make startup founders and their teams appealing to angel investors. We'll also touch on various tools and frameworks that angel investors can use to evaluate seed-stage startup teams.

When investing in seed-stage startups, angel investors should tailor the due diligence process. Here are some key considerations for assessing the founders, their team, and their HR systems.
 

Founder and Team Background:

For angel investors, getting to know the team behind a startup before making any investment decisions is crucial. Angels should consider the team's educational and professional background, skills, and experiences, and how they align with the startup's specific industry and market. Understanding the team's strengths and how they can contribute to the startup's success is vital in deciding whether to invest.

Another critical factor to consider is the founders' entrepreneurial experience and track record in their previous ventures. Investors should examine their successes, failures, and the lessons learned. Having the experience of running a successful business is obviously ideal because they understand the path to scaling and exiting a business. However, building a business that ultimately fails is still extremely valuable because many important lessons are learned along the way.

Platforms such as LinkedIn, AngelList, and Crunchbase offer valuable insights, while reference checks from previous employers and industry contacts provide a deeper understanding of the team's work ethic and leadership qualities. Investors can browse through individual profiles to gain insights into their expertise, previous roles, and the strength of their professional networks. 

Roles and Responsibilities:

Team Dynamics play a significant role in achieving success. The best teams have a collaborative spirit and each member contributes unique skills to the shared vision. Examining how team members complement each other in terms of skills and responsibilities is essential. As Helen Keller once said, "Alone, we can do so little; together, we can do so much." Seeking out such teams will only increase the likelihood of successfully executing the company vision. Therefore, investors should assess not only individual competencies but also how well the team works together as a collaborative unit.

Investors can use Team Assessment Frameworks like Belbin Team Role theory or Tuckman's Stages of Group Development to assess team dynamics, identify roles within the team, and evaluate how well the team collaborates and resolves conflicts. It’s also a great idea to visit the team’s physical office or factory and speak with some of the other leaders and long-standing employees if they have a physical location.
 

Adaptability and Learning Ability:

In the dynamic world of startups, adaptability, and learning ability set successful teams apart from those that fall behind. So assessing the team's ability to adapt to changing circumstances and market conditions is essential. A team that embraces challenges as learning opportunities is better equipped to navigate the uncertainties of entrepreneurship. Learning orientation and resilience are also crucial for a startup team. They are like the silent engine that propels a startup through challenges. Angel investors should seek founders who view setbacks, not as roadblocks, but as opportunities to learn, adapt and emerge stronger. In the words of Winston Churchill, "Success is not final, failure is not fatal: It is the courage to continue that counts." It is essential to determine how quickly the team can learn from mistakes and iterate on their strategies. The hallmark of a growth-oriented team is the ability to learn from past failures. Investors should be inclined to work with founders who openly discuss their past mistakes, demonstrate an ability to overcome challenges, and are committed to continuous improvement. As Thomas Edison once said, "I have not failed. I've just found 10,000 ways that won't work." 

To test a startup team's adaptability and learning ability, angels can provide feedback during due diligence and observe how the team responds to a new perspective. Additionally, they can ask the team about instances where they had to pivot or iterate on their business model to assess their openness to change. In both cases, angels are looking for founders and teams that have humility. 
 

Network and Relationships:

When assessing a startup company, one of the most important factors to consider is the team's industry connections, advisors, and mentors. It's crucial to evaluate how well they can leverage their network for the benefit of the business. Additionally, the quality and relevance of the advisors or mentors associated with the team should be taken into account. Starting a business can be a challenging journey, but it's easier when supported by experienced mentors who can guide the startup through key milestones. For angel investors, it's important to find founders who are open to feedback and are willing to learn. Being coachable is crucial, indicating that the team can set their egos aside and adjust their strategy accordingly with new information and advice. Milestones are not just accomplishments; they are also indicators of progress and their capability to hit future milestones. 
 

Decision-Making Process:

Investors should scrutinize the decision-making process when assessing a team's leadership styles. They evaluate the decisions made and the thought processes and strategic thinking underpinning them. To understand this process, it's important to know the decision-making structure within the team and how major decisions are reached. Assessing the team's risk tolerance and ability to make informed and calculated decisions is vital.

Scenario analysis is a powerful tool for due diligence, allowing investors to test a team's problem-solving abilities and strategic thinking. By presenting hypothetical scenarios, it's possible to gauge how the team would navigate the unpredictable twists and turns of the business landscape. Investors can also look to the financial model to see how different scenarios play out and should discuss the various contingency plans the team has in place. 
 

Commitment and Passion:

Investors should assess the level of commitment and passion that the founder(s) and team have for the problem they are solving. The intangible yet powerful qualities of commitment and passion anchor a team's journey. Full-time involvement, personal investment, and a profound understanding of the target customer showcase a mindset crucial for success. A team that goes beyond surface-level analysis and dives deep into market insights should be highly valued by investors. As Steve Jobs noted, "Get closer than ever to your customers. So close that you tell them what they need well before they realize it themselves." Investors should not just look for a great product; they should look for a great market. A team that understands its target market's size, potential, and nuances demonstrates a strategic mindset crucial for sustainable growth. 
 

When conducting due diligence on startup teams, it is crucial to explore beyond surface-level information. This involves delving into intangible factors that contribute to a team's success. Angel investors who possess the skills for team due diligence not only make sound investments but also have a better chance of nurturing successful and long-lasting relationships with the founders. 

Raymond To, who is an award-winning recruiter, HR advisor, angel investor, and passionate supporter of startups with 32 years of experience, advises that engaging in open and transparent communication with the founders and the team is the key to diving deeper into a company. He is an active member of eFund and has invested in companies like INETCO, lifebooster, and Netskrt. Here are a few approaches that Raymond recommends for assessing teams:

• When evaluating a company, approach it like a hiring process. It could be a friendly chat where you interview the founders and the team. Don't worry if you're not an expert interviewer. You can always ask other experts for help or develop good questions and ask yourself, "What are the good answers I expect?". Remember, nobody's perfect, so it's not about finding the perfect team but finding a team whose flaws you can live with.

• Using assessment tools or asking the founders how they build their team and develop their people can help you uncover any blind spots. This is a great way to learn more about the company and how it operates.

• Finally, don't worry too much about the HR and recruitment systems. Knowing that the company has those systems in place is a great start. The most important thing is understanding how the team uses those systems and how they align with the business objectives. This way, you can see if they fit your needs well.

The world of startup investing is constantly changing, but there are two major investor groups in this space that remain constant: Angel investors and venture capitalists (VCs). Both are key in helping early-stage businesses grow and succeed, but they have different areas of focus and expectations. This blog takes a closer look at why the founding team is the main focus for most Angel investors.

Angel investors typically engage with startups during the pre-seed and seed stages, which are critical phases in a startup's journey towards refining its prototype, testing it in the market, and validating its business plan. At this stage, founders face inherent uncertainty and risk. They make multiple hypotheses, experiment with different approaches, and adapt to the lessons they learn. For Angel investors, a primary focus is therefore on the founding team’s ability to pivot, adapt, and drive necessary changes.

In the realm of entrepreneurship, generating ideas is often the easy part, while transforming those ideas into successful businesses requires a unique set of skills and a lot of resilience. Angel investors recognize that a brilliant idea is only as good as the team behind it. The founding team's experience, skills, and track record are essential factors that help determine their potential for transforming their vision into a profitable reality.

When seeking investment, founders should strive to possess certain qualities that appeal to Angel investors. 

In the early stages of a startup's journey, the spotlight often shines on the founding team's ability to navigate the turbulent waters of entrepreneurship. Angel investors primarily focus on the people behind the business, recognizing that this phase is marked by hypothesis testing, market validation, and change. At this juncture, roughly 75-80% of the investment decision hinges on the founders. While ideas are in constant flux, an agile team can pivot and adapt to changes. Therefore, founding teams at the Pre-Seed/Seed stage must be open to change, whether it involves shifting the target market, modifying the product, or even altering the entire business model. Founders must be humble enough to accept when their initial hypotheses prove incorrect and be willing to explore new directions. 

Angel investors seek founders who are passionate, innovative, agile, and willing to embrace change.

When evaluating a founding team, Angel investors consider four critical factors: business and sales skills, industry knowledge and experience, technical expertise, and startup experience. These are the foundation upon which a startup's success is built. 

1. Business and Sales Skills: Founders must excel at selling their vision to customers, employees, investors, and partners.

2. Industry Knowledge and Experience: A deep understanding of the target industry and customer is critical for gaining traction and navigating challenges.

3. Technical Expertise: Demonstrating the capability to develop the envisioned product and continue to innovate is vital.

4. Startup Experience: Knowing and overcoming the inherent challenges of running a startup goes a very long way to giving investors confidence in the founding team’s ability to execute.

While it is ideal for a founding team to cover these areas comprehensively, only some teams can check all of these boxes. Supplementing the team with the right advisors and experts is the next best option to ensure these areas are covered. These external relationships also help validate the startup. When potential investors see a respected industry expert or advisor endorsing the business, it enhances the startup's credibility. Consequently, having strong advisors and a robust network can provide a significant advantage for any startup.

Investors recommend having multiple founders for a business to increase its chances of success. While a solo founder can certainly succeed, certain risks can be mitigated by having multiple founders. For example, having more than one founder reduces the risk of the company failing because a single individual gives up when faced with challenges. Additionally, it lightens the entrepreneurial load for any one person and reduces the likelihood of burnout. Therefore, entrepreneurs should consider finding a co-founder or two, to ensure all areas of the business are covered and to increase investor confidence.

As a startup progresses from the Pre-Seed and Seed stages to Series A and beyond, the focus shifts towards scaling the business and making strategic decisions for growth. Angel investors prioritize the founding team's ability to navigate early uncertainties, while venture capitalists enter the scene when a business has been validated and exhibits potential for accelerated growth. While venture capitalists still value the capabilities of the founding team, they put greater emphasis on the business and the market. It is not uncommon for venture capitalists to bring in experienced executives to help take the business to the next level and seize new opportunities. 

While the focus of Angels and VCs may differ, both can agree that the founding team is the driving force behind early-stage success and is critical to shaping the future of the business, regardless of how long they steer the ship. Therefore, finding a passionate, agile and well-rounded leadership team just makes sense.

We are thrilled to share that VANTEC has formed strategic partnerships with Sales Primer and Volition. We warmly welcome Colin McWhinnie and Chris Stairs from Sales Primer, as well as Paul Brassard and his team from Volition, to our community. These partnerships aim to contribute to the investor-readiness of companies that present at VANTEC in two key areas. 

Founder Support: VANTEC constantly seeks new ways to support founders in presenting their innovation in a way that investors will find compelling. Our collaboration with Sales Primer and Volition aims to equip founders with the tools and expertise to craft investor-ready pitches, ensuring their ideas capture investor's attention and confidence. 

Elevating Investor Experiences: These synergistic partnerships will also play a pivotal role in delivering on our commitment to provide our esteemed member investors with high-quality deal flows and the most promising startups. 

Synergy with Volition

Volition offers personalized advisory services and educational programs to help startups rise and thrive. They provide founders with the resources, support, and expertise they need to succeed and become investment-ready. Through our partnership with Volition, we can help presenting companies improve their investment readiness and align their strategies with investor expectations by leveraging Volition's extensive experience in pitch coaching and preliminary due diligence. Our collaboration will include dynamic Pitch Roundtables and Follow-on 1:1 Coaching to provide tailored guidance to founders. By improving the quality of their pitches and presentations, founders can build confidence with investors when pitching at VANTEC monthly meetings and increase their chances of attracting investment.

Paul Brassard, Managing Partner of Volition, says, "Through this partnership, we are dedicated to equipping startups with the skills, knowledge, and support they need to succeed in today's competitive fundraising landscape while increasing investor confidence and thus interest in investing in the companies presenting." 

Website http://volitionadvisors.com/

LinkedIn: linkedin.com/company/volitionadvisors/ 

Instagram: @thisisvolition 

Twitter: @thisisvolition 

Synergy with Sales Primer

With years of experience designing successful revenue strategies, the Sales Primer™ program and its accompanying application can assist business founders and sales leaders in creating a dependable and consistent sales engine that will attract customers and quickly generate revenue. It provides a variety of tools and insights to help businesses develop repeatable sales processes and scalable traction, as well as training and support to achieve these goals. As a VANTEC partner, Sales Primer will assist founders in both ensuring they have a repeatable and scalable sales engine, and  communicating their sales traction to potential investors. 

 Chris Stairs, Managing Partner, Sales Primer, expresses, "Helping Founders understand what it takes to achieve repeatable sales and scalable traction is our passion. We're especially pleased to have VANTEC Angel Network approach us to provide our Sales Primer "Sales-Readiness" content for their participating Founders. It's great to be recognized as a valuable resource for entrepreneurs in the BC market. "

 Website https://salesprimer.ca/

LinkedIn: https://www.linkedin.com/company/salesprimer/

We are fully committed to showcasing the most promising startups. Our partnership with Sales Primer and Volition will help us to elevate your investing experience with more investment ready pitches.

When it comes to startups, angel investors are the unsung heroes who do so much more than provide financial backing. They help shape the entrepreneurial landscape and propel society towards progress. This blog explores the realm of angel investing, its rewards, benefits to the startup ecosystem, and its vital role in fostering societal growth. Let's dive in!

Understanding Angel Investment: A Snapshot

In the dynamic and cutting-edge realm of entrepreneurship and innovation, startups often need financial support to bring their groundbreaking ideas to fruition. In such situations, it is often angel investors that step up and provide much-needed capital to these early-stage startups, typically in exchange for equity ownership or convertible debt. These investors, who put forth their personal funds, are often seasoned entrepreneurs, industry experts, or professionals eager to support promising ventures. Angel investments are often the first outside capital invested and can occur as early as the concept or pre-commercialization stage of the business. This is often a time when traditional funding sources are often in short supply or are not willing to take on this level of risk.

The Rewards Angels Reap

You may have different motivations as an investor. You might want to maximize monetary wealth by investing in the asset class with the highest risk reward ratio, seek non-economic rewards, or have altruistic motivations of supporting entrepreneurs whose vision aligns with your values. Investing in startups as an angel investor can be financially rewarding, but it also allows you to be a part of the exciting entrepreneurial journey. You can provide valuable guidance, industry knowledge, and access to your network to help founders overcome challenges and efficiently scale their business. This active involvement significantly increases the chances of success of both the company and your investment.

Societal Impact and Progress

The ripple effects of angel investments extend far beyond the realm of startups. When startups succeed, they introduce new products, services, and technologies that address societal challenges, improve efficiencies, and enhance the overall quality of life. Angel investments directly contribute to the expansion of these startups, creating more employment opportunities and a brighter future for all. Successful founders often reinvest in their communities and give back through various initiatives, including becoming angel investors themselves.

Let's explore How Angel Investing Works 

Getting started with angel investing can be daunting, but we're here to help you navigate this exciting world of innovation and opportunity. Let's explore the potential for financial growth and adventure. The angel investment process involves several key steps:

1. Deal Sourcing: Having good deal flow is crucial for finding great companies to invest in. As an angel, you identify investment opportunities through personal networks, referrals, startup events, incubators/accelerators, or specialized communities like VANTEC that connect investors with startups seeking funding.

2. Due Diligence: The art of due diligence is something that angel investors refine over time. Each investor will weigh different aspects of a business differently, and it is up to you to figure out what you think creates the optimal conditions for success. Perspective is an important asset when assessing a business and discussing amongst your peer angel investors and with the different stakeholders of a business can help you gain perspective - it also makes due diligence more fun! 

It is not difficult to find templates online for what should be included in a company’s data room or in a due diligence report, but knowing how to analyze a business comes with practice. To get you started, here are a few things we suggest you pay attention to when analyzing a company: the experience, technical expertise and industry knowledge of the founding team and their advisors; a well researched and comprehensive plan; strong tailwinds that support the timing of the venture; and clear market validation.

1. Negotiation and Investment: One of the most difficult aspects of angel investing is negotiating fair valuations and terms for investment. When getting started as an angel investor, it is usually best to focus on finding companies with great potential and leave the negotiations to experienced angels or investment funds. Over time you will learn what terms you like and dislike. Finding a mentor that can teach you this side of angel investing or asking the lead investor to explain their rationale for the valuation and proposed terms is a great way to learn.

2. Mentoring and Support: Beyond capital infusion, angels play a significant role in company growth by providing guidance, mentorship, and industry insights to the startup.  Strategic advice and introductions to potential customers and partners can be the difference maker for a startup. Even if you don’t have the expertise or experience to help the startup yourself, perhaps someone in your network does. Therefore, the bigger your network becomes, the more value you can create.  

3. Exit Strategy: An exit is when a company provides liquidity for their investors. This is usually achieved through an acquisition by another company, taking the company public on a stock exchange or by the company buying the shares back from their investors. Since, as an angel, you are getting in at the ground floor of a business, there is usually a fairly long expected time horizon attached to an investment at this stage. 5-10 years is fairly typical for a successful exit, but it can take less or more time, depending on market conditions and the growth rate of the business.  

Conclusion

Angel investments are a testament to the symbiotic relationship between experienced individuals and aspiring entrepreneurs. Beyond financial gains, angel investors bring expertise, mentorship and passion to the startups they support. Their contributions are the lifeblood of innovation, propelling the startup ecosystem forward and shaping a brighter future for society. As the startup landscape continues to evolve, the role of angel investors remains pivotal in driving progress and fostering a culture of innovation.

The world of angel investing is exciting and rewarding, and our team at VANTEC is here to help you every step of the way. We offer a variety of exclusive benefits to our members, such as pre-screened deals, due diligence resources, opportunities to build your network of peer investors and more. Let's take the first step together and schedule a call to discover the endless possibilities that are waiting for you in our wonderful community. Reach out to us at community@vantec.ca