How to Secure Follow-on Funding for Your Start-Up Business

There is a very real issue facing funded companies getting to the next level in their growth. Sometimes, companies who are reaching a successful peak do so just as they are in need of another round of funding. Where do you go? Angel investors are rarely in a position to provide a full round of funding on their own, and not everyone has access to venture capitals.

Recently I spoke with Jeffrey Steiner, President of the Network of Angel Organizations. An investor himself, he has experience both introducing companies to VCs for them to procure follow-on funding, and with the NAO has facilitated follow-on funding events for companies in this unique position.

How long has the NAO been working on follow-on investment programs?
In 2007 the Ontario government started funding the Angel Network Program in order to address the investment gap faced by early-stage technology companies in the province. Now that these efforts have borne fruit, companies are ascending to a new level of growth. For this reason, NAO-Ontario organizes an annual event presenting follow-on investment opportunities brought forward by Angel groups. The first Follow-on Investment Forum took place in 2008 and we organize a new opportunity each year for angel investors to network and find companies that represent growth opportunities.

I spoke to Bruce Croxon earlier this year, and he mentioned a lack of follow-on funding in Canada. Can you explain more about this problem?
Often a gap still exists between the Series A round that Angels (working in small groups) have the ability to complete and larger investments by venture capital firms. So a further round of angel funding might be required. Also it is often a best-practice for angel investors to keep ready some capital for later use in their portfolio of companies; successful ones grow, but consequently need more capital.

How do angels and VCs fit into the various stages of funding?
Angels typically invest at the Seed or Series A round, when the company is just about to or has just starting selling and earning revenues; Venture capital firms typically invest a bit later, in companies with strong growth potential and have established a track record of sales. Often millions of additional capital will be required to realize on a sustainable growth pattern. Venture capitalists want to be sure that the entrepreneurs can scale-up their business to higher sales revenues and eventual net profits.

Can you explain a bit about how Angels exit when follow-on funding happens?
Angels can stay in, or be bought out when the next round of investment happens. A realistic valuation of the company at the outset will hopefully ensure that they secure gains on their investment from subsequent investors. When all parties are realistic about the valuation of an early-stage business, then it’s a good basis to grow. Angel investors bring more than just their money — its also their experience and judgment which are valuable assets for the entrepreneurs to tap into.

What’s happening at this event?
Ontario’s community interested in innovative companies and early-stage investment will convene at the Follow-On Investment Forum at the Arcadian Loft in downtown Toronto on Tuesday, June 18th, 2013, showcasing how Angels’ experience, passion and capital are indispensable catalysts of economic growth. The forum is being held exclusively for accredited investors who are interested in next-step start-ups on the cusp of global growth, as it will showcase at least eight pitches from carefully selected Angel-backed companies seeking subsequent rounds of finance. There will also be networking and sessions sharing expert views on exits from thought leaders of our community.

Speakers and special guests include John Ruffolo, Chief Executive Officer, OMERS Ventures and Parker MacDonell, Founding Member, Ohio TechAngel Fund & Board Member-Elect, Angel Capital Association

The complete list is here. You can register today at and benefit from a significant discount by using code, NAOEARLYBIRD by May 31.

What has been the outcome in years past? Can you share some stories?
Stories from past events are usually subject to the confidentiality requirements of the companies and their investors. At a minimum, companies presenting have raised awareness among very well-networked investors attending, with unpredictably positive results including investment, new markets, new board directors, and new mentors.

What non-monetary support do you offer to companies in a position for follow-on funding?

We also provide pitch coaching.

How does the relationship between founders and investors change as they go from Angel funding through to follow-on funding? How do the roles and responsibilities change?
We expect that an informal and close relationship will usually give way, to some degree, to a more formal and structured relationship as the amount invested increases. Milestones would become even more specific and time-bound. Usually the CEO would become more focused on business growth issues and less on product-development concerns, more formal investor-relations materials and systems might be developed, and balancing the interests of different sets of investors becomes a greater concern than ever as all parties share in the company’s growth.

What is the ultimate goal of the NAO in hosting this forum?
Early-stage companies still rely heavily on the private-sector for the capital and expertise needed to commercialize. Government helps this stage of company formation by supporting angel groups as part of Ontario’s Network of Entrepreneurs (the ONE Network). The Follow-On Investment Forum will celebrate our network’s economic impact, and provide entrepreneurs their best chance to capture growth capital from a province-wide audience of accredited investors and select venture capital firms.

Any other advice to those in need of either Angel round or follow-on funding?
We encourage individuals who are interested in getting involved in growth companies to join at an early stage. Some readers of the Huffington Post may be accredited investors, and want to learn more and meet other like-minded people in the community. There is strength in numbers, so we encourage interested people to join an angel investment group by contacting the Network of Angel Organizations in Ontario at and join us in Toronto on June 18th.

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