Grant Lawrence on angel investing and joining angel groups

0:00I'm Ashlyn Addison from event chain for investmentpitch media and FinTech news network and today on blockchain interviews we have Grant Lawrence the chapter president in BC of the Valhalla angels hey grant welcome to the show thank you so much for taking the time to be here and it's a pleasure to have you today good to be here you're very welcome if you could please

0:22start by giving a little bit of background on the Valhalla angels group and your experience with angel investing so far certainly so the hollingers group started in Alberta and 2003 so we've got now four chapters across two western provinces were the most active angel group in Western Canada with about 140 investors across those four chapters and I started to help manage the BC groups

0:48three years ago and so my journey as an angel has been about four years long right now making investments assisting the startup founders with how to improve their pitch and look at their their market space and so forth that's great and I guess the key question is why should people become an angel investor and why did you become an angel investor surveys also off of my own own journey

1:13I've always been in the tech side and I was seeing that there's a lot of new invest new startups coming out but they didn't have some of the experience necessary to accelerate to grow and so I've been lucky enough to have a pretty good career and I thought this is a way to get back of course I also like the ability to live vicariously through those startups I don't have to do all

1:34the work I could just do some advice and why should I work hard and come up with really cool innovations we just see so many cool innovations with the number of people that approached us to get in front of us and then of course is the returns so taking a portfolio approach to the investment so you're gonna have some winners some losers and of course

1:51maybe a couple home runs here there to make up for everything else and even to that give a good return so there's you know a lot of people have different reasons but those are wineries and some are philanthropy and investors others want to change the world by investing with their dollars and voting where they're gonna place an impact basket let's say for a social tour social cause

2:11or you know clean fuel green investments and so forth so there is a lot of different reasons for people to get into it and we're seeing people that are retired that a well-off one would also give back so we're seeing an awful lot of people come out as advisors as mentors as introduction people that can make introductions to key industries and keep businesses and of course you

2:36know to participate and get a create you'll be on the board of directors eventually when they're big enough to have a board mm-hmm that's a great answer grant and I know some people would think you know the first thing you would say is you know investing is for the return but there's so much extra value in there especially when the average age of entrepreneurs is getting

2:54lower with technology and a lot of these are just coming out of their teenage years or they're very young entrepreneurs and to be able to act as a smart investor or an investor that has a lot of insight as you've had experience in the industry I'm sure there's a lot of value in that for both the angel and for the entrepreneur would you agree yeah I would I'd say they invest the

3:15upcoming entrepreneurs there is folks that love to solve the problem and there's folks that love to they're in love with their product and it's trying to help them okay your product may have a fit but this makes sure it's really the problem that's gonna be solved so the ones that are in love with solving a problem have a much easier time ago okay that my my babies not really beautiful

3:36today I have to go and change it because the problems over here it's not the problem I thought it was solving so adapting in the common term the pivot so keep your right on there that's great now how much money should an angel investor have lying around before they decide that they want to become an angel investor and start throwing it in investments I would say that the first

3:58question is to ask are you an accredited investor so a lot of people don't realize that they already have reached that threshold that is defined in Canada by the federal government saying hey if you've got so much in assets or you've made so much or the past couple years is the number of different definitions that you can qualify as a credit investor and

4:16then the next question ask yourself is how much of this money am I willing to put into this risky asset class its 10% is it 15% is it 20% knowing that it's going to be a long time before I would see something back and I may not see anything back right so you could be waiting 5 7 10 years to see some of that cash flow come back we put them to these startups and put your

4:39trust in these startups yep so the dollar figure it's up to you as a portfolio and would you say that well angel investors are usually investing their own money but they tend to be investing really early on and that's much higher risk as opposed to investing at a later stage is there a tendency for angels to just want to take on this high risk is it for higher returns or maybe

5:03it's just they have you know there's more access to early-stage deals because venture capitalists aren't really ready to invest in those deals at the time and angels need to step up and take that risk yeah correct there's a big gap between your first funding which is going to be yourself max out your credit cards your friends your family and then there's a big gap until you get to the

5:24venture capitalists or your bankable or you're able to get funding from your revenue source because there's a lot of that happening now where you can go on take loans against your revenue and then select gap is where the angels come in and depending on the the angel they're gonna have they should have not all them do a thesis what do I like to invest in

5:46so it could be a industry it could be a geographical location oh and also could be when do I want to invest what stage of the company are on divest am I gonna invest in the ideation stage where they're just thinking about the ideas it's a it's a thought exercise that it started to paper it or is it going to be when there's traction so the companies almost the parks almost out they may be

6:10in pilot with some marquee accounts or they have 50,000 downloads but they haven't monetized it at all yet there is no revenue but they're getting followers and users so you have to determine what part of the risk scale you're a to invest in and also are you ready to invest the second time when they come back for the time just come back for the next round of money so you can continue

6:33to grow with them salute me invest when it's an xx evaluation and then when they come back or the next round of money they're 3x so do you want to invest again so you now serve just roll with that investment mm-hmm very true and I guess every angel is gonna have their threshold on how early they want to invest but at the end of the day they're likely looking for an exit

6:56now what doesn't exit look like for angels well the exits can vary obviously it the average length of time is going to be somewhere between 5 and 10 years where you have your money tied up with the founders and the company growing so in Canada we do ask that question through one of our founders base camps that we have what do you think the average exit

7:16size is in Canada because when they come and pitch to us a here's where how we're gonna exit and here's the valuation we're gonna exit at well the average exit size and Canada is about thirty million dollars so you're gonna say it's just combinational IPO or acquisition for the moment so when they see you know the Canadian see these huge exits it's a

7:35hundred million dollars it's two hundred million dollars though that's not the reality for most companies yeah thirty million dollars could be a merger or acquisition type of play or an IPO those are the most most two common ones there's also structured exits there's selling off some of our IP it could be a joint venture where you get your money out of the venture capitalists could

7:56come in and say hey I want to buy out all the previous investors and run with this so there is a number of different ways to get money out mm-hmm yeah that's great that you mentioned the investment horizon Wood was my next question and you sort of hit the nail on the head there with five to ten years I'm guessing that's the average but some you know trained entrepreneurs like to say

8:17hey we we are looking for a quick exit you know in your opinion what do you think about quick exits or people that are just looking to get the you know they do have the shareholders best interest in mind but they're looking for an exit strategy really quickly what do you think about that when we see that we see so many that when somebody says a quick exit we we tend to not believe it

8:38well in some ways some people do math say well I'm gonna double it and if that's the memo where I'm going at five years to it so because we know that even though they're drawing this nice graph going up to the right for revenue we know that it's really you know more sporadic and we're we're in the lifeboat with right we're there in the journey for the

8:56next five seven years together and so we don't we don't think it's really gonna be you know two years out three years out those are the very rare occasions yeah that's great insight now another question I have is some of these hot industries at least in Canada here like cannabis blockchain and mining often build companies up for a public play and that's their exit strategy is going

9:20going public do you put those in a different kind of category where like they're sort of built for the market or do you consider you know a merger and acquisition or like a joint venture and an IPO potentially just sort of in the same whichever exit strategy is appropriate for the company is the one that they're gonna take yeah at that point you know if they come to us we

9:43don't see a lot let's say we're gonna go and do a reverse takeover and you'll take the shell company if somebody it's already listed on the stock exchange that's typically a further discussion we're seeing them in at an earlier stage yeah we're typically helping to get you know some revenue some traction product market fit making sure that they're going the right way that they've hired

10:05the right people because it was very awkward seeing product-related people they may not like to do HR or sales so sales is a weak spot a lot of startups so that discussion about what the eggs it is even though they have an exit strategy slide we all know there's some challenges there and it may come out to what you just stay you know something to do going public

10:25first takeover but very often that's a future discussion mm-hmm and to further that you know when you have the average exit at five to ten years from now you know at ten years pro formas and exit strategies almost 99.9 percent of the time change within even two years right yes definitely you know so that comes back to looking at the team as well so some of these

10:50already got experienced they proved they can do growth then that makes you much more confident to say okay these performers even though we know they're best guesses we have a little more confidence in somebody says okay this is my first time at the rodeo I'm gonna see what we can do and telling us these are true so we really do this performance just because it's so far out

11:10if they're on the other hand if they come to us and say there's my top-line customers I'm worried in million dollars in revenue and here's my pipeline and we know the proven predictable sales cycle then you know okay your performers have a lot more weight yeah yeah definitely once the cash flow start coming in and you have a historical cash flows it's a

11:30lot easier to predict future cash flows but a lot of these early stage startups for angels are pre revenue right they're pre-revenue I would say a few of them get through our deal screening process for pre revenue because we do try to optimize their opportunity to raise capital through our members meanwhile we won't fit the members are gonna say hey

11:53that's really a good good tech good team good product fit and I'm interested to invest so we bring the both of them together to ensure they have a high success rate we're some around over 33% of our the companies that do make it through ordeal screen raise money so that's a pretty big addition we do a very good job that's great congratulations now we talked a little

12:18bit about this before but some of these investments turn into what you like to call zombies now could you explain what a zombie is to to the viewers right so there's a couple different classes of zombies so one is that it's turned into a lifestyle company so the founders are very successful they got their customer base their training money in its you

12:44know getting them a great amount of cash in their own pocket because they're paying themselves well but they haven't yet given back to the investors that could be family friends so when they may have some difficult discussions with family friends around Christmastime and then of course the Euro the investors being the Angels so that's that's one it's a lifestyle company the other one

13:04is the zombies where they're going up and down and up and down they just maybe keep on raising money and then oh got one more customer so those that go on for ten twelve years you haven't recognized any revenue back to yourself any return and at the same time you can't go okay that's enough you have to go to declare bankruptcy you can close the company so at least I can write off

13:25against my taxes something so that's that's a zombie they're not exploding like they said they were and they're just floating along down the down the river that's great and now what advice would you give to entrepreneurs that are interested in in reaching out to Valhalla or looking for angel investments I would say going attend an angel investment forum so that the

13:50Halloween we invite we put aside a couple seats for each forum for guest entrepreneurs so they can actually see what the process is what the questions are that coming from the angels and they can also then change their pitch deck to recognize that we do have a recommended pitch content we don't tempt we don't make it a template because everybody's got their own style and uniqueness to

14:14presenting so we want them to be different but we also make sure that here's the items that you need to cover off and here's the recommended amount of time on these items so you don't get oh I'm gonna spend three minutes on product and that means I didn't get to talk about the return to the investor in the deal right you treat up time too much in one spot the other suggestion I would do

14:35is look for Mentors like there's so many people out there that are willing to give advice if you look on LinkedIn and say hey get a warm introduction and then ask for some advice when people are willing to help out a little plug for our founders Basecamp that we run we've had about 1,200 founders serving so far it has an innate motor score of 98 that one's a very good one to help you

15:01live in the shoes of an investor for a weekend and modify your pitch and also come up with a capital funding plan so some pretty powerful outcomes of that you know founders base camp that's great and if entrepreneurs or angels are looking to learn more about Valhalla and get involved what is the best way to do so just go to the web of course and look

15:23up Valhalla angels calm and there's four or five tabs on there there's some resource tabs or founders tab there's four entrepreneurs half there's an events tab you can find all sorts of information there and you'll find all the with us on there as well so you can reach out to us as well individually to which that's great I'll leave that link in the description

15:42box below that's all the time that we have for this interview grant but thank you so much for taking the time it's really been a pleasure speaking to you and learning about Valhalla let's follow up in the near future yes Thank You Ashton it was great good questions