Find Good Companies

Updated: Apr 8

The better your deal flow, the better your chance of finding great companies to invest in. You should seek to find at least 10 good companies for every one you pick. For many professional investors (e.g., venture capitalists), that number could be as high as 100 for every one they invest in.


This is not just a numbers game. You want quality more than quantity. If you can clearly communicate the kinds of deals you are seeking, and the value that you are capable of adding to them, then you can help ensure that you get both good quality and sufficient quantity of potential deals in which to invest.



Sources of Deals


Incredible companies, those with an excellent management team, great intellectual property (IP), customers and revenues, do not mysteriously appear from nowhere. During the pre-investment, bootstrapping phase of their startup, entrepreneurs need to network with a tremendous number of people to gain access to team members, facilities, resources, advice and customers.


Good entrepreneurs are well-connected – but are they connected to you? Ideally these entrepreneurs will be referred to you by people who already know them well and whose opinions you respect.


Here is a starting list of places for you to look:


  • Your social and professional network – Often your most trusted source of referrals will come from close friends, business associates and professional colleagues. If your immediate circle of associates can give you access to good companies, then you may not have to look very far.


  • Networking and educational events – Entrepreneurship has become very popular, and most cities have dozens of related networking and educational events that draw crowds of founders, founding team members and startups. Often the event organizers are seeking people like you to give a presentation, sit on an expert panel, or be part of the jury for a competition. These can be great ways to expand your network, raise your profile, and let people know that you are looking for deals.


  • Universities – Most universities have incubators, accelerators, business plan competitions, entrepreneurship degrees or courses, technology transfer offices, great labs, and injections of government money. Add to this the educated young people seeking jobs and you have a recipe for large numbers of new startup companies.


A difficulty is that universities can be labyrinth-like, without a central point of focus or contact. Each department or faculty may offer its own programs, facilities, competitions and advisors. For example, at Ryerson University in Toronto, we generate over 400 new startups a year through almost a dozen different incubators and accelerators (ranging from digital media and urban energy to fashion, law, design and social ventures), many different competitions and awards, several seed capital sources, and our own venture capital fund (Ryerson Futures) that offers up to $80,000 in financing. Each of these programs has its own group of advisors, mentors, funding and educational programs.


  • Regional innovation centers – These not-for-profit organizations tend to be funded by the government, but are not part of the government. Almost every major city in Canada has one, and relatively large cities might have over a dozen, funded by different constellations of municipal, regional, provincial, federal, charitable and sponsor organizations. They often contain incubators and provide entrepreneurs with such services as mentorship, education, access to Entrepreneurs-In-Residence, consulting, and networking opportunities.


  • For-profit incubators, accelerators and co-working spaces – These often provide startups with an intensive 3–4-month growth acceleration and around $10,000–25,000 in funding, office space and facilities – along with mentorship, services and introductions to customers – in exchange for around 8% of their equity. These organizations are always seeking follow-on investors when their hatchlings graduate. Other accelerators provide much larger amounts of funding: FounderFuel in Montreal invests $50,000–100,000 of capital and over $400,000 in perks and services.


“Trust is key when building a strong referral network,” says Bryan Watson, “In 2015 alone, the portfolio of companies at INcubes (a Toronto-based for-profit incubator) secured just under $5 million in follow-on funding, primarily from Angel investors. When asked, these follow-on investors noted that they liked our portfolio company referrals because INcubes only sent them high-quality opportunities. They knew that, as a private accelerator that was solely Angel-backed, our incentives and motivations were aligned with those of other investors – to invest in the best companies possible.”


  • Service providers – Accountants, lawyers, consultants and bankers tend to be well-connected sources of deal flow, especially if they are active in the early-stage investment ecosystem.


  • Online searches – There are many online portals and marketplaces where Angels can find and co-invest or syndicate deals, including AngelList (www.angel.co), Gust (www.gust.com), EquityNet (www.equitynet.com), and YarakSeed Ventures (www.yarakseed.com). According to some, these online marketplaces result in around 30% of all Angel deals in the US.


  • Angel groups – There are hundreds of Angel groups around the world that provide a wide range of activities for their members, including:

  1. Providing a public face to attract deal flow while enabling individual members to maintain their privacy

  2. Marketing actively to solicit and manage deal flow

  3. Meeting with entrepreneurs and screening potential opportunities

  4. Providing standardized information sheets that allow Angels to quickly assess interest

  5. Organizing investment presentations by prospective investee companies

  6. Organizing, collaborating and tracking due diligence and successful deal closing

  7. Providing software systems to manage deal flow and co-investment

  8. Organizing regular meetings that provide a social network to facilitate camaraderie and sharing of common goals

  9. Networking to find additional Angel investors

  10. Arranging for professional management

  11. Obtaining matching funding from government sources

  12. Collective investing that results in companies raising more money, providing more economic power to the Angels, and increasing the likelihood of success for the investee companies.

The US Angel Capital Association (ACA) ranked the quality of these and other sources of deal flow as follows:


1. Referrals from other Angels in the group.

2. Referrals from other Angel groups.

3. University competitions and demo days at incubators/accelerators.

4. Service providers.

5. Syndication calls and events.

6. Random submissions (Mirabile)



You can visit our Angel Groups Directory to see the most active ones in your country.



What Is Crowdfunding?


In 2008, President Obama passed legislation that would pave the way for crowdfunding for equity. Until that time, the majority of funds raised through the crowdfunding process had been done as either pre-orders for product or as fan support for company swag. In 2008, the JOBS Act would supposedly facilitate members of the general population making micro investments in startups.


As of 2015, the US Securities and Exchange Commission (SEC) was still struggling to put into place the facility and regulations to allow such micro investments for equity practical.

The term “crowdsourcing” was coined by Wired magazine editor Jeffrey Howe.


Crowdsourcing refers to the outsourcing of any task normally assigned to an internal employee. Procter & Gamble has famously used crowdsourcing to move 75% of its new product research and development out from underneath their internal employees and into the hands of researchers distributed worldwide. Wikipedia is a great example of crowdsourcing, as are Yelp and Uber.


Crowdfunding was first widely introduced to the public by kiva.org a social venture that allowed individuals in the First World to make micro loans to entrepreneurs in the Third World. But it wasn’t until the arrival of Kickstarter that crowdfunding really took to the mainstream.

On Kickstarter, and on the hundreds of crowdfunding sites that popped up after Kickstarter’s arrival, members of the public can purchase items that are not yet made. Kickstarter collects and aggregates these pre-orders until they have sufficient funds to develop and deliver on the product. Pebble, one of the world’s first distributors of smartwatches, famously kickstarted their Pebble Watch by seeking a few hundred thousand dollars in pre-orders. By the time their campaign had ended, the startup had collected $10 million of pre-orders for a smartwatch that had not yet been produced.


There are some potential downsides to crowdfunding. Often crowdfunding is undertaken by non-accredited, unsophisticated investors. These investors have no protections under the SEC. There have already been many cases of companies taking in hundreds of thousands of dollars and failing to deliver on their product promises. There are few legal repercussions in such cases and thus little protection for these micro investors. Furthermore, crowdfunding does not contribute the vital mentorship that often comes with Angel investing.


Dr. Sean Wise, Assoc. Professor of Entrepreneurship & Strategy, Ryerson University


Startup founders can also raise seed rounds in return for future gains in the form of equity by using equity-Crowdfunding.


In Australia, equity crowdfunding is available to companies with an annual turnover or gross assets of $25 million or less. Companies using equity crowdfunding are also limited by how much they can raise, it is capped at $5 million annually.


Retail investors are also restricted by how much they can invest. At the time of writing, they can invest $10,000 per company annually. Those who earn a gross income of $250,000 annually and have net assets of at least $2.5 million, as known as sophisticated or wholesale investors, have no limit on how much they can invest.


The fees you have to pay are dictated by the platform. Some platforms charge investors transactions fees, some charge fees on exit and some may charge both. However, you may be able to find platforms which don’t charge any fees. So, as well as carefully selecting the company you choose to invest in, the same consideration should be taken with determining the platform you use.


Some things to consider before investing in equity crowdfunding, or investing in an early stage business with equity crowdfunding, is that businesses are generally at the beginning stage of their development and have not necessarily made any revenue. This can make it quite a risky investment and also difficult to crunch the number and assess the company by quantitative means. So, when deciding which company to invest in you should understand:


  1. The stages of growth of a typical early stage business.

  2. Why the company is seeking equity finance.

  3. How the company plans to use the funding to accelerate growth.

  4. How you will realize a return on your investment.

  5. You may mitigate the risks by diversifying your investments.


Screening Opportunities


Imagine that you’ve met a prospective investee company and, regardless of whether this was a handshake or an email, they are now going to provide you with information about themselves. What form should the information take? A formal business plan and subscription agreement? a 20-minute presentation? a long, rambling email? a term sheet? a formal process with an application form?


The Funding Success Funnel



Lone Wolf Angels tend to look at whatever the entrepreneur has and decide whether or not to proceed directly to deal negotiation and due diligence.


The Snap Decision: "I can say no to something in less than a minute 99% of the time because it’s not in a theme, they’ve raised too much money, or it’s too late-stage. Assuming that it gets through that, then my primary selection criteria for any investment is to first focus on the entrepreneur. Is the entrepreneur completely obsessed about their product? Not passionate – but obsessed." – Brad Feld, in Maher, Startup Wealth


Rather than allowing for snap decisions, almost all Angel groups have a screening process that takes place before exposing their Angels to potential investee companies. In this process, most require the entrepreneur to complete a standard application that is used for screening.


This phase of the screening process normally requires a meeting or phone call and an in-person, dry-run presentation to a screening committee, together with committee feedback, before being selected to present to the full membership. Some groups also check references during this phase.


Having a standard application format helps ensure that screeners have easy access to the information they need. 70% of US Angel groups use Gust.com, which provides an Entrepreneur Application feature to help potential investee companies ensure they submit information in an appropriate structure (Payne). Using Gust.com, Angels can automatically screen out any deals that fall outside of their investment range, industry sector or location.


Only 12% of US Angel groups will accept a traditional business plan for this phase of the screening process (Mirabile). Some Angel Groups also have a virtual joint-screening process that lets potential investee companies pitch to multiple Angel groups at once. This method was quite common during COVID (2020-2022).



Critical Factors for Venture Success


Based on analyzing over 20,000 early-stage, pre-revenue ventures, the Canadian Innovation Centre (CIC) developed a complex, 42-factor Critical Factors Assessment (CFA) that predicted the likelihood of either failure or success. This instrument was validated by completing surveys five years after the assessment to determine the commercial success of the product or service (Åstebro & Elhedhli). The tool was found to be more than 82% accurate at predicting success and 84% accurate at predicting failure.


Factor Analysis (an analytical procedure for distilling and grouping information) was used to simplify this assessment tool, and eight higher-level critical factors that embedded the 42 factors were identified. Failure of any single critical factor is sufficient to cause overall failure. These eight factors (listed below) along with investor–opportunity fit, are found to be a reliable tool for use at the initial screening stage. (Maxwell, Jeffrey & Levesque)



It is interesting to note that the CFA was originally developed as a diagnostic tool for entrepreneurs. While Angels will reject an opportunity for a failure in a single factor (because they do not have the time to fix it), the identification of specific problems can help focus the attention of the entrepreneur on the factor(s) they must fix before they will get investment from an investor. — Dr. Andrew Maxwell, Chief Innovation Officer, Canadian Innovation Centre


Most screening committees and individual Angels use some form of checklist and various technology platforms. Screening technology platforms include Dropbox, Box and Google Docs for document sharing; Survey Monkey or Doodle for polling members and scheduling meetings; Skype, Zoom, Facetime or Google Hangout for videoconferencing; Salesforce.com for customer relations management; and when all else fails, Excel!


Common Angel Deal Flow Process



The next phase of the screening process usually involves a formal 20–30-minute investor pitch presentation by the potential investee company, including Q&A (Angel Resource Institute’s Due Diligence of Early-Stage Firms Workshop). Angel group managers send all members a standardized investment opportunity summary sheet they can use to decide whether or not to attend the presentation. Most groups host from two to four presentations at monthly meetings. As shown earlier, of the 695 presentations made to Angel groups in 2014, 271 (almost 40%) generated interest from investors and moved forward to due diligence.


Angel Group or Lone Wolf? Angel groups have been found to statistically perform better in their investments, partially due to the level of due diligence conducted. This can often be seen at Angel groups when opportunities are discussed. In one particular meeting I attended, three companies were presented: a microfluidic diagnostic chip, transgenic goats that produce spider silk milk, and swarm-theory-based HVAC control systems. Seemingly impossibly, for each, there was an Angel in the room who had direct, personal experience with their technology. It is virtually impossible for a Lone Wolf Angel to have the knowledge and network necessary to invest in such a variety of companies.

— Bryan Watson, Partner, Flow Ventures


Each Angel has a unique decision-making process for determining whether to screen out a company or enter into the negotiation and due diligence process. Most agree that some combination of the following factors strongly affects their decision:


  1. Does the deal fall within my portfolio targets for amount of money, sector and location?

  2. Do I like the entrepreneur/founders/team and trust them with my money? Would I enjoy spending time working with them? Are they coachable? Are they extraordinary? Are they passionate or obsessed?

  3. Do I love the product/market space/vision?

  4. Can I add value?

  5. Is the opportunity big enough to get an attractive exit and provide sufficient return on investment?

  6. Are there fundamental risks in the business that make it likely to fail?

  7. Is there intellectual property or some other sustainable competitive advantage or barrier to entry?

  8. Do I like the terms of the deal? the valuation? the structure?

  9. Who else is investing in the deal? How well do I trust these other investors’ judgment or track record?

  10. Is there momentum? Is there any reason to invest now instead of waiting to see a better deal? Is the timing important for any reason?



The Artful Science of Pitching: Frank Erschen has developed a pitch coaching method called “The Artful Science of Pitching,” where he distinguishes between the art and science of pitching: Art is what founders must use to be able to tell an investable story. It’s necessary to be artful in crafting a pitch story to account for not having any or many sales, and sometimes they don’t even have a product yet. Science is how investors evaluate. Pitch competitions often have a weighted scorecard. Most Angels have a mental checklist, and venture capital investors (VCs) usually have very refined criteria and analysts who perform detailed due diligence.

The challenge for founders is to present their best foot forward despite not having all four corners squared while their audience thinks in shades of black and white.

– Frank Erschen, Charter Member, Golden Triangle Angelnet


As Brad Feld recommends: “If you’re going to be an Angel investor, start writing cheques. If it takes you 12 months to write your first $25,000, you’re making a mistake. You’re going to get better deal flow by making investments and getting known as somebody who actually writes cheques.” (Maher)


Unicorn Hunting in the 21st Century: Over 15 years, I have met more than 20,000 founders and not one of them told me their idea sucked. In fact, each believed their startup was THE NEXT BIG THING. Each dreamed of having their startup turn into the next Twitter, Facebook, Zynga or Slack. Each wanted to ride the elusive “unicorn.”

For VCs, a unicorn is a startup that has a billion-dollar-plus exit. However, about 98% of all active VCs have never successfully had a billion-dollar exit.

The magic formula for spotting a unicorn would be a “Rosetta Stone” for investors; it would allow anyone to spot the next great startup. So a year ago, legendary investor Brad Feld and I set out to find the Rosetta Stone of startups. We wanted to crystalize objective criteria that would accurately predict which startups would become unicorns and which would become zombies.

After reviewing more than 20,000 pitches, dozens of Techstars cohorts and multiple seasons of Dragons’ Den and Shark Tank, here is what we found: It is simply not possible. Unicorns aren’t found, they are built. It is execution, not opportunity, that dictates the fate of founders!

— Dr. Sean Wise, Assoc. Professor of Entrepreneurship & Strategy, Ryerson University


Source: Adapted from First Ed. NACO Angel Investing.



Now you are ready to continue with the second part of Chapter 2: "Managing Deal Flow"

If you have any questions about this chapter, don't hesitate to contact us at info@yarakseed.com