The days of the silent angel investor are numbered.
Canada’s angel investment ecosystem isroaring loudly as a scene that’sbigger, more organized and more actively involved in the startupcompanies it invests in than ever before, according to data gathered by the National Angel Capital Organization (NACO).
“It’s more organized, absolutely. NACO has clearly done a yeoman’s job in advancing theprofessional angel investment community in Canada,” said Jaguar Capital Inc. presidentand CEO Gerard Buckley.
Buckley used the NACO data to outline the sweeping changes affecting the angel landscape during arecent workshop at INcubes, a Toronto incubator and accelerator forInternet startups.
Several factors have combined to increase the number and involvement ofangel investors in Canada, he said. One is the popularity of TV showslike Dragon’sDen, SharkTank and ThePitch, which have shone aspotlight on startups by highlighting the potential risks and rewardsof putting everything on the line for an idea.
“(They’re) putting the attention on what’s trying to be achieved (so)we got that very public and theatrical side of (angel investing),”Buckley said.
The launch of new startup and angel investment funding programs byfederal and provincial governments is also boosting angel activity, headded. One such program is the Investing in Business Innovationfund, a federal initiative which matches every $1 invested by an angelin certain qualifiedSouthern Ontario ventures with 50 cents of federal funding, Buckleysaid.. Governments are creatingthose initiatives because research shows small businesses result in themost job growth, he said.
“The largest number of jobs are created by companies with 100 employees or less,” Buckley noted. “As a result, government agencies are putting large amounts of effort into pushing (angel and other startup) programs forward.”
The same trend has also resulted in major government funding fororganizations like the Toronto-based incubator MaRS Discovery District,which are spurring on even more VC and angel investment in startupsoverall, Buckley said.
The last factor encouraging angel investment is the dramatically lowercost of starting a business today, Buckley said, which has led moreyoung entrepreneurs to launch startupsand made the cost of initialangel investments much cheaper than they used to be.
“To set up a business today you don’t need a million dollars,” Buckleysaid. “Therefore the cost of (starting) an entry level business is alot lower than it was even a few years ago and allows a lot moreinvestors to participate in this space.”
Angel groups growing
While the old school view of angels was of wealthy individuals who putmoney into ventures in a more disparate way, today’s investmentlandscape features a growing number of organizations and programsproviding early stage financing,
Those newer organizations and programs include accelerators andincubators such as MaRS, Hyperdrive, and INcubes itself, as well asangel investment groups like NACO, which represents 28 angel groups and1,500 investors across Canada. There are 13 angel groups in Ontarioalone. The proliferation of organized angel groups is a newerphenomenon, with 50 per cent of all angel groups in Canada launchedsince 2008.
The popularity of crowdfunding sites is yet another development thatcould alter the angel investing landscape, Buckley told the audience.Groups like the Canadian Advanced Technology Alliance are lobbyingprovincial governments to legalize equity crowdfunding for startups onsocial media Web sites.
Today’s angels aren’t just more organized, they’re also taking a muchmore active role in mentoring and advising the startups that get theirmoney, Buckley said. And that approach is leading to greater success:angels who did more due diligence on their investments, had moreexpertise in the industry sectors they invested in, and had moreface-to-face interaction with their startups enjoyed a higher return oninvestment than angels who were more hands-off with their startups.
As reported in NACO figures released last month, the number of angelinvestments rose 50 per cent in 2011 to 134, up from 90 in 2010. Thevalue of angel investments jumped 134 per cent in 2011 to $82.4million, up from $35.3 million in 2010. The average angel investmentdeal was worth $614,000 in 2011, up from $442,000 in 2010.