Improving Investment Readiness of Start-Ups for Angel Investment Funding: A Case Study

The problem that I investigated in this research was that of a Canadian Angel Investor Group faced with the critical issue of seeing the proportion of funding requests that successfully made it through the evaluation process and reach deal closure being too low. Examining this issue within the context of the existing literature on Angel Investing revealed that the problem faced by our Organization is in fact quite common throughout the Angel Investment ecosystem and also prompted the consideration that information/guidance provided to entrepreneurs before embarking on the review process could potentially have a positive impact on the chances for the success of the investment submissions as they undergo detailed analysis. Stemming from the proposition that providing greater support to applicants during the screening phase could contribute to increasing the closing rate of investment files by better preparing the entrepreneurs for the subsequent stages of the Angel Investor Group's selection, the Organization decided on generating a Pilot Preparatory Program to attempt to address this issue. Using an Action Research paradigm, a single-case study was performed to try to derive the lessons learned through the introduction of an investment readiness program launched to help entrepreneurs improve their chances of undergoing the Organization's structured evaluation process (Due Diligence) successfully. The "case" studied comprised the four phases: 1. Developing the Pilot Preparatory Program, 2. Running three cohorts of the Pilot Preparatory Program, 3. Observing the effects of the Pilot Preparatory Program, and 4. Reflecting and planning future action. Review of the literature illustrated the complex, multifaceted nature of entrepreneurship and the more “relational and emergent aspects” of Angel investing, which indicated that a holistic approach would be required to derive the overall meanings from the case. Within this context, I utilized a mixture of methods of data collection to inform different stages, and to ensure that the evidence addresses the initial research question. These include the review of documentation and historical data, observations, as well as conducting 28 semi-structured interviews to examine the experiences of the stakeholders that had taken part in the Pilot Preparatory Program. After transcription of interview recordings and manual “broad brush” thematic coding, I used the qualitative data analysis software package NVivo to perform a systematic analysis of the interviews and to link the themes and sub-themes back to the research questions. Following this thematic coding process and my personal, reflexive pause, I conducted a group sense-making exercise which involved eight participants comprised of the Organization's permanent staff and the Chair of its Board of Directors. This case study revealed that participating in the Pilot Preparatory Program increased the level of preparation of the entrepreneurs as it relates to defining their target markets, articulating their business model, and constructing their financial model, as well as improving the quality of their pitch. These learnings should enable them to present information that is relevant and to prepare better proposals for investor negotiations in the future. The Pilot Preparatory Program had an impact on all stakeholders in terms of fostering the development of relationships based on trust between the entrepreneurs and individual Angel Investors, as well as between the entrepreneurs and the Angel Group Organization. Furthermore, the study also illustrated how creating a space where entrepreneurs can interact with a sub-group of seasoned Angel Investors during the screening phase can be conducive to the germination of a coaching relationship and the identification of champions for their project within members of the Angel Investor Network. The Program was also a catalyst, from the Angel Organization's perspective, for enhancements to the dossier Pre-Selection process and practices to prepare entrepreneurs for the Organization's verification process. While bringing forward the notion that, for this Angel Investor Group, whose interest resides in ventures that are at the pre-commercial to the commercial stage, the most relevant mandate of an in-house investment-readiness type of program would likely be that of a "polishing" step to help the entrepreneurs prepare pointedly for the Group's structured evaluation process. Moreover, the research uncovered that such a program should allow a degree of customization to the specific needs of the entrepreneur. The findings also made prominent the criticality, for the Organization, when developing a program, of clearly identifying its target audience upfront and articulating and communicating its differentiated offering. Key words: Angel Investors, investment process, investment readiness, due diligence.