The 7 Questions Interview Series: Angels and Venture Capitalists

The 7 Question Interview Series is an investigative content series where I seek out key leaders in a specific industry and/or subject matter expertise area and ask them 7 key questions that “enquiring minds want to know”. There is a twist however to these questions. I provide the interviewee with a hypothesis for each question to help frame and set context for their answer. This specific series of interviews is ideal for startup founders.

Series Objective

The objective of this series is to establish direct connections with VCs and Angel Investors across the globe and ask them the same set of 7 questions regarding investing in technology startups. I’d also like to know what their appetite is for investing in Canadian startups and why they do or don’t.

Interview with Angel investor John Breakey

Here’s my tenth interview with John Breakey an entrepreneur and angel investor. John’s perspective is of great interest to me because he and his partner grew UNIS LUMIN, a technology services/solutions company, out of his basement into one of Canada’s most successful system integrators with close to 100 employees and over $40M in annual sales. I was honoured to have been a member of the management team and enjoyed my eight years as their marketing leader.

When would it be appropriate for a startup to seek investment from you?

Typically Angels like to see a business that is about to or has just started to create revenue.  Like any good portfolio mix, an Angel’s portfolio may have allocations for really early start up opportunities where the Angel is a founder shareholder and on the other end of the spectrum, companies that have active sales but are now ready for accelerated expansion.  Getting to know a particular Angel’s invest strategy may help to determine fit early in the relationship.

What’s more important: The idea, the team or both?

The decision is based on a list of key considerations where anyone could be a knock-out punch.  The score of each is either: Excellent, Neutral or Unacceptable. The key factors I use are:

  • Skill and maturity of the leader or team – Do they have strong sales capability, past experience managing people, cash flow, past history of execution.
  • Solution: Does it have a unique differentiator in the market that is clearly distinguishable?  Is it solving a customer problem that customers are willing to pay for NOW? (chasing a solution that many others are chasing is a non starter)
  • Financial competency:  Do the founders have skin in the game (not just sweat equity)? This ensures the founders will not abandon their “dream” if the going gets tough.  Can the money they are asking for enough to see them through 12 to 18 months?  Is the revenue projection supported by a realistic pipeline of potential customers?  (Trial customers are not equal to paying customers)

What are you looking for in a startup team? What does a winning team look like?

Experience matters – managing a business is more difficult then coming up with a winning idea – having related work and leadership experience reduces risk. Execution matters – do the team members have any history of turning strategies into results Honesty matters – How well is the founder leveling with you on the market potential, are they understating competing solutions or unrealistic about market acceptance? If they don’t trust you with the truth’s why should you trust them?

What are you looking for in an idea? What does a winning idea look like?

Angel investing is just another option in an investor portfolio.  While it may be a bonus that the company has some greater good, it is an investment.  Return is a function of capital risk. It competes with other investment markets. I can make 12% on a lower risk private mortgage so a higher risk Angel investment needs to produce a 25% annualized return.  Seeing a return in 3-4 years allows you to “take profits” that can be reinvested elsewhere and ensures your portfolio is growing. If I want to participate in something esoteric I can volunteer in a social cause.

Does a startup have only one shot?

Yes, Angel groups share both good and bad pitches but a failed pitch does not preclude a second chance.  If the idea is fundamentally a bad idea it has little chance to return for successful investment however most failed pitches are an opportunity for the founder to get good feedback from experts so the founder can learn to retool their strategy to make it a stronger company.  Sometimes the company is too early in their evolution and need to mature the business whereby they can demonstrate their future success.  For example, getting a few paying customers may tip the scale compared to having no customers.

Can you describe your due diligence and investment process? What’s important for a startup to know about it?

Yes, most Angels have similar criteria.  The ability for the leadership to execute, realistic growth projections and the importance of the solution for customers to buy is key to a winning pitch.

In your view, is Canada a fertile ground for tech startups? If so, why and in what ways is Canada unique and competitive in this regard? Are you investing in Canadian startups? If so,why? If not, why not?

The federal and provincial governments have excellent programs to aid early stage companies that hedges the risks for the start ups and the investors.  Having face time with the founders makes local investments easier and most Angels understand local markets more than international ones so there may be greater comfort for the Angel.  Having said that some solutions may require a larger market to be really successful but proving your solution in local markets first can be easier to get early feedback and input for a pivot from their original go-to-market hypothesizes.

About John Breakey

John Breakey is an Angel investor and the CEO of Fivel Systems Corporation and GeNUIT Inc makers of PROMYS PSA software. He was the founder and CEO of UNIS LUMIN from 1990 to 2012 which was acquired by Softchoice for $17M.

Social Outposts: Twitter | LinkedIn | AngelList

Chris HerbertChris Herbert is the founder of Mi6. Mi6 is a B2B (Business to Business) marketing and business development agency dedicated to helping companies build their brands and develop commercial relationships. He is the founder of ProductCamp Toronto and the Hi-tech community Silicon Halton. He tweets under the handle @B2Bspecialist.

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