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Tools and Tips for Angel Investing

While Angel Groups provide members with a structured investment process (due diligence), members make their own investment decisions based on their discussions with potential investee companies.

During due diligence, it’s usual for members to look at a company’s business plan and other investment criteria. SWO Angels has prepared a checklist of the key factors that may be applicable in discussions with a company.

Download our Due Diligence Checklist

It’s important to remember that the checklist is only a guide, designed to help members have the appropriate discussions with entrepreneurs and their companies.

Depending on the stage or sector of the company, some factors may simply not be applicable. In other cases, there may be factors not covered by the checklist.

Financing Terms for Angel Investing

There are many ways to invest in a company – common equity, preferred shares, convertible debentures or warrants are the most popular structures.

Some Angel Groups have a preference for one investment structure over another. SWO Angels members typically like to be offered common equity or convertible debentures.

As well as the investment vehicle, there are other financing terms to consider such as the company’s valuation and investor rights.

SWO Angels has prepared a list of financing terms for members to use to evaluate, or better understand, the terms being offered by a company. The list is not meant to imply that a deal is a “good” if all the terms are present; and “bad” if they’re not. That evaluation depends on the specific situation.

However, a member may want to negotiate for a particular term to be included, if it is not originally offered.

In some cases, the Angel investors may not be the lead investors. In these cases, the lead investors will have already established the financing terms. In this situation, SWO Angels’ financing terms help members evaluate the terms they are being offered.

There is a trend of companies wanting to use a Simple Agreement for Future Equity (SAFE) as the investment structure. A SAFE is similar to a convertible debenture in that money is lent to the company, with the money being converted to share ownership in the future. However, many terms that protect investors and encourage them to help the company are not included in a SAFE. Few SWO Angels investors will invest in a company via a SAFE.

What is an accredited investor?

*In Ontario “accredited investor” is defined by the Ontario Securities Commission (OSC) and includes:

  • An individual who, alone or together with a spouse, owns financial assets worth more than $1 million before taxes but net of related liabilities
  • An individual, who alone or together with a spouse, has net assets of at least $5,000,000.
  • An individual whose net income before taxes exceeded $200,000 in both of the last two years and who expects to maintain at least the same level of income this year;
  • An individual whose net income before taxes, combined with that of a spouse, exceeded $300,000 in both of the last two years and who expects to maintain at least the same level of income this year
  • An individual who currently is, or once was, a registered adviser or dealer, other than a limited market dealer
  • Financial institutions
  • Governments and governmental agencies
  • Insurance companies
  • Pension funds
  • Registered charities
  • Certain mutual funds, pooled funds and managed accounts
  • Companies with net assets of at least $5 million
  • Persons or companies recognized by the OSC as an accredited investor

If you are interested in joining SWO Angels, contact us today at: info@swoangel.com