Régis Régis Desmeules, author of the book Succeeding in his first financing and member of Anges Québec (Photo: courtesy
BUSINESS FINANCING. Financial angels and baseball players have at least one thing in common: their batting average, which rarely exceeds the 0.300 threshold. Most members of the Anges Québec network interviewed by Deals indeed measure the effectiveness of their investments in venture capital as one evaluates the hitters of the most American of sports. Their average is calculated by dividing the number of files where they make a profit by the total number of files in which they get involved.
“An angel invests in several files, for the sake of diversifying his investment portfolio. Out of ten projects in which he places his marbles, two or three will bring him more than his initial outlay by generating an attractive return,” says Patrick d’Astous, president of Astous Groupe Conseil and member of Anges Québec since 2012. For the other seven or eight, “in the best case scenario, you recover your initial outlay without making a profit, continues the man who has invested in several young technological start-ups. In the worst case, you lose your bet. »
Home runs, those Cinderella stories at the end of which financial angels recover five to ten times the amount of their initial investment – or even more – are rare. Like in baseball, some never take it out of the stadium. “I don’t know an angel who isn’t convinced of being better than his counterparts!” laughs Ginette Mailhot, angel investor and president of the Economic Development Corporation of the MRC de Joliette. Everyone is convinced that they are making the deal of the century, even if the statistics show the contrary. »
This therefore amounts to saying that, despite all the precautions taken by the angels during the due diligence stage, they are not immune to error. Stories of bad luck worthy of acts of God that derail promising projects are also legion in the industry. “You have to keep in mind that these investments are very risky in nature; you don’t see the color of your money again for sometimes more than a decade,” explains Régis Desmeules, author of the book Réussir sa premier financing and member of Anges Québec.
Active investors
Fortunately, the motivations of financial angels are not only financial. Many see themselves as agents of economic development who actively participate in the creation of the wealth of tomorrow. By making their money talk, of course, but also by distributing tips and advice to young entrepreneurs who are just asking for it. “We can give with much more gratuitousness and desire for the common good,” says Ginette Mailhot. For me, that means investing in projects in my region, Lanaudière. »
This influence of angels on their investments is often materialized by the place they occupy on the board of directors of the young companies supported. “Above all, it’s a way of seeing what’s going on internally and of having a special channel of communication with entrepreneurs,” says Régis Desmeules. They then get into the habit of contacting us on a regular basis, not just when they need it”. This “volunteer” involvement, which can last for years, allows the angels to share their rich experience in the business world. “That’s what excites me the most,” he says.
Patrick d’Astous is more cautious about this. “Do I get up in the morning telling myself that I am changing society? No,” he says. After all, an angel owns – at best – a few percent of the businesses they get involved in, in the form of stock. As a general rule, with each round of venture capital financing, a company offers between 15 and 30% of its shares to all investors, including financial angels. The latter therefore exercise almost non-existent individual control.
“You have to learn to let go, and quickly, advises Patrick d’Astous to the inexperienced angels. If I am certain that I have done everything in my power to influence the destiny of the company, I am at peace with my investment decisions. »
In the Quebec community of financial angels, we will long remember the success of Paper. This Montreal start-up specializing in education concluded a US$100 million financing round last June led by a major California venture capital fund, Institutional Venture Partners. At the same time, several members of the Anges Québec network sold their shares in the company, achieving an exit described as a “record”. Among them, Michel Lozeau, one of the first four angels to have believed in the project at the time of its first seed round, in 2016.
“I cannot disclose the profit made; what I can say, on the other hand, is that I have recovered much, much more than 10 times my starting bet,” reveals the man who currently holds the position of chairman of the board of directors of Anges Québec. Paper, it must be said, has followed an exceptional trajectory since its founding seven years ago. Then known as GradeSlam, it offered online tutoring in the form of educational videos for students from elementary school through CEGEP.
Today, Paper connects students and tutors across North America – and soon the world – through a virtual platform offered at a low cost to educational institutions. The 700-employee company thus helps more than one million children, being accessible in nearly 200 US school districts, among other places.
Paper is also one of the companies that have experienced the strongest growth in the last three years in Quebec — 2443% — according to a recent ranking by L’actualité magazine.
Crucial contribution of angels
The pandemic has fueled the success of Paper, as many confined students have found answers to their questions in the subject of their choice on the app, regardless of the time of day or the day of the week. Very clever, however, whoever could have predicted a health crisis of this magnitude in 2016, and its consequences on the education sector. It was the confidence and vision of CEO Philip Cutler — who himself tutored during his Bachelor of Education at McGill University — that prompted a handful of angels to embark on the adventure.
“From the first meeting with Philip, we saw a lot of very positive signals. The company offered good technology that meets real needs and its managers had an excellent strategic vision as well as solid commercial ambitions,” says Emmanuel Guyot, one of the members of Anges Québec, early investors. Paper’s algorithm actually has the particularity of matching students with the “good” tutors, that is to say those who will be able to help them effectively.
In 2018, Paper proceeded with a second round of financing, at the end of which ten new angel investors joined. Michel Lozeau then maneuvered behind the scenes, notably opening the doors of Paper’s own network outside Quebec to Paper’s management. The arrival in the scene of Framework Venture Partners is not unknown to this boost – the Toronto venture capital fund is still one of the investors involved.
“My goal with Paper was never to build a giant technology company. From the beginning, my goal has been to change the world of education by making tutoring more equitable and accessible to as many people as possible,” Philip Cutler told the business magazine Forbes last July.
For now, Paper is not used in Quebec. However, it is not for lack of being able to offer the online tutoring service in French. “It saddens me, admits Michel Lozeau. Like what no one is a prophet in his country. »
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