Sandy Robertson, Georgian Angel Network, Collingwood, ON, CYBF Mentor
Financing Your Innovation Series – Part 2 of 3
Having exhausted all personal & family/friends cash resources, you next go to third parties for equity funding. The show Dragons’ Den has been a blessing (raising awareness about private equity for start-ups) and a curse (the made-for-TV format distorts the actual process) for real-world angels. The angel market in Canada continues to evolve and become more sophisticated, and various deal structures are possible.
Simplicity in deal structure benefits all parties. However, negotiations become more complicated when different perspectives about valuation turn up. There is, understandably, a hard-wired gap between what the entrepreneur feels their innovation is worth and the pre-money valuation a new investor feels is appropriate in order to generate an acceptable ROI for them. All mathematical models aside, valuation is a black art and is completely situation/company-specific.
This negotiation is, unfortunately, where many deals fall apart. You, the entrepreneur, need to keep in mind that ‘smart money’ is worth a lot more than the cash investment alone – intellectual and experiential capital is a significant part of value that angels have to offer.
See the entire Financing Your Innovation series: