We prefer to invest in what we know and understand.
Therefore, Spark Angel investors typically gravitate to companies in sectors that mirror our area of expertise including but not limited to Information technology, energy, automotive, telecommunications, internet, enterprise software, SaaS applications and other innovative firms that are market ready and have high growth potential.
When we invest in early stage companies they are often already generating revenue with products that are completed or at least are post first implementation development.
Preference will be given to companies that have demonstrated that founder/friends/family capital has been extensively deployed to bring the product or service to, or very nearly to, its first revenue customers. The company has not likely undertaken a capital raise beyond this insider group.
Most of our investments will be in the $250k – $400k range, but through our co-investment/syndication relationships with the other angel groups in Ontario we can, through 1 process and 1 term sheet, bring together other angel groups that allow for pooled investments of up to $2 million in any particular company.
The management team is an important component in the due diligence process. The Angels prefer to seek (but do not necessarily require) management teams who have a proven and well regarded track record.
Ideally, we look for a management team that has managed a business within the industry that the company operates in, and is complete across the range of management disciplines and business functions required to enable the business’s success – but realistically, this is rarely the case.
There should be a well-developed ‘how to’ plan (not a stuffy, formal business plan) including realistic market penetration and financial projections which articulate the cash requirements through to a cash-flow positive stage in the business. The plan should clearly articulate the scope of the company’s competition and the company’s/product’s sustainable competitive advantage.
Proprietary technologies, where applicable, would ideally be protected (or at least be capable of being protected) and the company should have a commitment to continuing this pursuit. In the absence of this, the company should have a well defined rationale for not doing so.
Valuation and Exit
Founders should have a reasonable basis for valuation and a sense of the range of possibilities as to how much of the business they wish to share with new investors.
The Angels will seek a strategic and articulated exit strategy for founders and new investors.
We look for companies with a main office or base of operations preferably located within driving range.