2014 Report on Angel Investing Activity in Canada

2014 Report on Angel Investing Activity in Canada

Harnessing the Power of Angel Investors

Released June 2015

This report was made possible with the financial contributions from:

Authors Acknowledgements

Paul Schure Department of Economics, University of Victoria

Melissa Dodaro National Angel Capital Organization

This report is based on the data from the 2014 Canadian Angel Group Survey and follow-up telephone interviews. All data collection and writing were done by the authors in conjunction with the 2014-15 Project Steering Committee.

NACO and the report authors wish to thank the members of the 2014-15 Project Steering Committee for their direction, expert advice, and comments. A special thank you to Thomas Hellmann (Oxford University), Yuri Navarro (NACO), Younes Errounda (Industry Canada), Jim Valerio (Industry Canada), Shane Dolan (Industry Canada), Erika Kurczyn (BDC Capital), Jeri Ross (KPMG Enterprise), and Karen Grant (Angel One Investor Network) for leading the direction of the report.

NACO also thanks Industry Canada for providing additional analysis and content to be included in this report, and the Network of Angel Organizations - Ontario for their valued contribution to Ontario data collection. We would like to recognize David Valliere (Ryerson University) for peer reviewing a draft version of this report and providing his insight.

Special acknowledgements go out to the Angel group managers who volunteered their valuable time to provide the data for this report – without them there would be no activity to report.

The National Angel Capital Organization (NACO) is the industry association championing Angel investors and their investments across Canada. We represent more than 2100 investors who help Canadian entrepreneurs in every region and industry to execute their vision and compete on the global stage. Our members provide companies with patient risk capital, expert advice and professional networks when traditional financial and other institutions cannot.

The role of Angel investors is critically important to Canada’s economic prosperity. As the steward of Angel research in Canada, we understand the importance of collecting and disseminating information about our investor community for our members and stakeholders and the innovation community at large. Reports like this help Angel investors and others to benchmark their success against that of peers, learn best practices, and recognize leaders within our community.

We are proud to share with you our fifth annual Report on Angel Investing Activity in Canada. While this report only captures the investment activity of a fraction of our more than 2,100 members across the country, it helps to provide us with a basis for understanding Canada’s Angel community and our broader early stage ecosystem.

Working to encourage and support entrepreneurs as they realize their vision for a prosperous future is part of the DNA of the Angel investor. Over the last 5 years, this report has captured over $270 million in 712 investments in 409 companies. We are encouraged by the results of this year’s report, which show that Angel investment continues to grow and become more connected. Working together, these individuals and groups are supporting the entrepreneurs who continue to form the backbone of our future economic prosperity.

It is our mission to professionalize Angel investment in Canada, giving Angel investors the tools, resources and networks to develop a robust investment community. We hope this report will contribute to that goal by providing Canadian Angel investors with a better view of the positive impact of their activities and the knowledge they need to reduce risk and improve investee company success.

Finally, I would like to acknowledge the efforts of all of those who contributed to this year’s report, including the members of the project steering committee, our partners who have supported this initiative, and the Angel group managers who have taken the time to share their data with us. Without their collaboration and investment, this initiative would not be possible.

We hope you enjoy learning more about our community and look forward to having you join us as we work to harness the power of Canada’s Angel investing asset-class in 2015.

Yours truly,

Harnessing the Power of Angel Investing

Michelle Scarborough

Chair NACO Board of Directors

This 2014 Report on Angel Investing Activity in Canada identifies key statistics and trends in the visible Canadian Angel capital market as measured by the activity of Angel groups. This report was compiled from an analysis of the data on Angel group operating statistics and Angel investments that NACO collected from Canadian Angel group managers through surveys and follow-up interviews.

This year’s report includes a special section that presents an economic profile of Angel-backed firms, which is the product of a collaborative effort by Industry Canada, Statistics Canada, and NACO. The results presented in this section were compiled from the Reports on Angel Investing Activity in Canada survey data and from Statistics Canada administrative databases. It is hoped that as the volume of collected data increases over the next few years, a sufficiently robust longitudinal database of Angel investments can be created that will enable an econometric analysis of the economic performance and impact of the population of Canadian Angel-backed firms.

Economic Profile of Angel-Backed Firms

Industry Canada created a longitudinal dataset of 110 Angel-backed firms by linking data from NACO’s Canadian Angel Group Surveys of 2010, 2011 and 2012 to Statistics Canada administrative databases. An analysis of the sample showed that in the year that they first reported an Angel investment, most Angel-backed firms performed R&D, posted high levels of R&D intensity, had negative net income, paid high wages, and were small in terms of both revenue and employment.

The 2012 performance of the surviving Angel-backed firms was subsequently compared to firms in three comparison groups from the general population of Canadian small firms: small manufacturing firms; small professional, technical and scientific services firms; and small R&D active firms. It is important to note that Angel-backed firms in this analysis were young, with most of them having received their first round of financing in 2010, 2011 or 2012. Of the Angel-backed firms in the sample, 60% were R&D active in 2012 while this was true for less than 8% of the

manufacturing and the professional, technical and scientific services firms. It was also found that Angel-backed firms tended to be highly R&D intensive and expectedly unprofitable given their young age and R&D intensity. They employed highly qualified professionals as reflected by the high average wages they paid, even when compared with R&D active firms among the three comparison groups.

Activity Overview

The Angel group data set provides a reliable picture of the characteristics and activity of the visible Angel capital market1 in Canada. The 2014 Angel Group Survey was completed by 30 Angel groups. These 30 Angel groups reported 237 investments and 217 deals in 181 companies in 2014, for a total amount of $90.5 million.

The year 2014 saw a 2% increase in funding and a 17% increase in the number of investments. Deal size increased as well and two more exits were reported than in 2013. There was a big shift in the composition of investments in 2014. New investments increased by 66%, while follow-on investments decreased by 37%. A higher share of investment went to new companies in 2014 as opposed to existing portfolio companies, which represents a reversal of the trend observed in 2013.

Angel group investment activity remained concentrated in Central Canada. Of the $90.5 million reported Angel investments, 89% were made in Central Canada, 10% in Western Canada, and 1% in Eastern Canada. Angel groups invested substantially larger amounts in Central Canada than elsewhere. In terms of numbers of investments, 70% were in Central Canada, 28% in Western Canada, and 2% in Eastern Canada.

Angel Groups

Canadian Angel groups represented over 1,700 Angel investors, of whom 30% were in Western Canada, 63% in Central Canada, and 7% in Eastern Canada. Membership numbers declined compared to the 2013 figure of 2,100 Angels. Applications for funding by companies also declined. However, the average number of investments

Executive Summary

5 | 2014 Report on Angel Investing Activity in Canada

1 For the purposes of the report, the visible Angel market consists of the Angel groups known to NACO. This report captures the majority of the visible Angel capital market in Canada, but not all. In Canada, as in the US and elsewhere in the world, Angel investment activity in the visible Angel market is overshadowed by the investments placed by private individuals outside of Angel groups, which are impossible to track.

per group increased, and a bigger percentage of group members invested in 2014 compared to 2013.

There was ample diversity among Angel groups in terms of their size, activity level, geographic focus, cost of membership, funding model, services provided to members, and the degree of professionalization. Approximately 60% of the groups were structured as not-for-profit organizations, 7% were for-profit, 20% were informal clubs/networks, while 10% were branches of larger legal entities. Except for a few, most Angel groups noted that they would consider investment opportunities in Information and Communications Technology (ICT) and Life Sciences, the top two recipient sectors of Angel capital. Overall, Angel groups had a broad industry focus.

Some groups were very selective and invited only a small percentage of their applicant firms to present to investors. Other groups invited almost all applicant firms to present to the group members. The more selective groups funded a larger percentage of the firms that were invited to present to investors.

Investments

Over 80% of Angel funding was concentrated in two sectors: ICT and Life Sciences, with about equal shares. Clean Tech found itself in a distant third place with 3% of the funding. ICT investments tended to be much smaller than those in Life Sciences however, ICT attracted a higher number of investments (55%) than the Life Sciences sector (22%).

The bulk of the investments by Angel groups were made in the city or province where they were located and the median investment amount per Angel group was $160,000. Angel groups in Central Canada made the largest investments (median of $200,000), followed by groups in Eastern Canada (median of $134,000) and Western Canada (median of $100,000). The median investment amount in an ICT or a Clean Tech company was $125,000, compared to a median amount of $250,000 invested in a Life Sciences company.

Co-investments (joint investments with Angels in the same group) occurred in 65% of the investments, with the most common co-investment scenario occurring between just two partners. Syndication (Angel investment with investors from outside of the group) occurred in 75% of the deals. Of the deals for which the syndication partner was known, 53% were syndicated with Angel investors from outside of the group, 15% with venture capitalists (VCs), 12% with a government partner, and 16% with another financier. Only 8% of the investments had multiple types of syndication partners.

The median deal size was $883,000, substantially higher than its 2013 figure of $500,000. At $723,000, the median deal size in ICT was about half that of Life Sciences ($1,405,000). Three somewhat surprising findings on deal size were that: (i) deal size for follow-on investments was about the same as for new investments; (ii) the same was true for the deal sizes of pre- and post-revenue firms, and (iii) deal sizes were not larger for syndicated deals.

Valuations and exits

The number of reported exits in 2014 remains low, and about the same as those reported in 2013. Angel groups reported 10 positive exits (from nine companies), of which eight were M&As and one was an IPO. The survey respondents reported that three Angel-backed companies went out of business.

The median and average (pre-money) valuations in 2014 were $4.0 million and $5.6 million, respectively. They were not as high as in 2013 when the median and average valuations were $5.0 million and $6.1 million, respectively. Median valuations were about the same across sectors. Follow-on investments tended to be associated with higher company valuations.

2014 Report on Angel Investing Activity in Canada | 6

1 | Introduction

2 As defined by the National Instrument 45-106. According to a publication of the Ontario Securities Commission in 2012 (OSC Exempt Market Review: OSC Staff Consultation Report Paper 45-710, Considerations for New Capital Raising Prospectus Exemptions. Toronto: OSC) there are between 391 and 857 thousand people in Canada who potentially meet the accredited investor criteria.3 For example, we asked whether Angel groups collect any demographic information on their membership.4 Comparisons based on amounts/volumes in this report are based on the subsample of 26 Angel groups. With our sample we trust we capture the visible Angel capital market in Canada well. It has to be kept in mind that statements in this report do not necessarily reflect trends in broader Canadian Angel capital market as research shows that large numbers of Angel investors operate outside the realm of Angel groups.

Angel investors play a crucial role in the Canadian entrepreneurship ecosystem. They often fund companies at the critical, early stage of firm development, and offer other valuable input, such as mentorship, access to networks, and expertise. Angel investors can search for business opportunities by joining Angel groups, which are membership forums of accredited investors2 who meet regularly to review investment opportunities. For companies, Angel groups offer a number of advantages. One is simply the fact that they are visible. Instead of a time-consuming search for Angel investors, companies can submit an application for funding directly to an Angel group.

The 2014 Report on Angel Investing Activity in Canada is based on the fifth Canadian Angel Group Survey that has been conducted by the National Angel Capital Organization (NACO). Its goal is to identify key statistics and trends in the Angel capital market in Canada. Since 2010, the report has captured over $270 million in 712 investments in 409 companies. The report also includes a special section that presents the economic profile of Angel-backed firms from the 2010, 2011 and 2012 surveys. This was the result of collaborative work between NACO, Industry Canada and Statistics Canada.

The survey instrument used for this report can be found at http://nacocanada.com/knowledge/research/Angel-ac-

tivity-reports/. It has been modelled after the instruments used in earlier years. New questions have been added to increase our understanding of the structure of Angel groups, their application procedures, and investment processes. New questions have also been added to explore a possible future expansion of the scope of the report.3 The survey questions are classified into three categories:

• Questions on the characteristics of the Angel group,

• Questions on investments placed by Angel group members, and

• Questions about any exits from past investments in companies.

NACO invited 39 Angel groups with five or more members to complete the online survey with nine of these groups approached for the first time in 2014. The response rate was 77%, with 30 groups completing the survey, including four new respondents. Fortunately, 26 of the 27 groups (96%) that participated last year participated again this year (Table 1). A high response rate among last year’s participants is very important as it makes comparison of market volumes between last year and this year possible.4


Following the survey, all groups were asked to participate in a follow up interview. The goal was to confirm the survey information that was unclear, to address unanswered questions, to collect additional information on reported exits, and to enquire about best practices. Follow-up interviews were conducted with 23 respondents.

Thirty Angel groups participated in the 2014 survey (Table 1). In 2014, the 30 Angel group survey respondents reported 237 investments and 214 deals for a total amount of $90.5M. Twenty-six of the 30 groups participated both this and last year. Based on this comparison sample of 26 Angel groups it is estimated that in 2014 the visible Angel market grew by 2% in terms of dollars invested and 17% in terms of numbers of investments. The median amount invested in a company was $145,000 and the average $282,000.5

The report is structured as follows. Section 2 presents Angel group characteristics, while Section 3 explains how Angel groups select the companies they invest in. Section 4 presents the findings from our analysis of the investments Angel groups made in 2014. This core section discusses the number of deals and investment amounts of Angel groups, details on co-investments and syndicated deals6, round size, and company valuations. Section 5 presents the findings from the analysis of reported exits. Section 6 presents an economic profile of Angel-backed firms that was by linking data from NACO’s Canadian Angel group surveys of 2010, 2011 and 2012 with data from Statistics Canada administrative databases. Section 7 presents the best practices and challenges as reported by Angel group managers. Section 8 provides conclusions and Annex A includes a data dictionary and glossary.

5 Where applicable both medians and averages are reported in the report. Both the median and the average are indicators of what happens to a “typical” observation. However, the median is a more robust statistic that is not influenced by several large or small observations, while the average is.6 In the context of the report we speak of co-investment if multiple group members invest together in a company, and syndication in case one or multiple group members invest alongside parties outside the Angel group – think of Angels, VCs, strategic investors, financial institutions, etc.

Table 1: The 2014 Angel Group Survey - Participant Overview

Angel Group Characteristics In 2013 and 2014 Sample (n= 26)

New in 2014 Groups (n=4)

Full Sample (n=30)

Median Age (years) 6.0 1.5 6.0

Average Age (years) 7.3 1.5 6.3

Median Number of Members 46.5 40.0 41.0

Average Number of Members 56.0 62.5 55.1

Groups (n) that Made Investments in 2014 n=23 n=2 n=25

Investments (k) Made by Group Members in 2014 k=226 k=11 k=237

Median Number of Investments 6.0 2.0 6.0

Average Number of Investments 8.7 2.8 7.6

Median Dollars Invested (per Angel Group) $2,300 thousand $350 thousand $1,500 thousand

Average Dollars Invested (per Angel Group) $3,400 thousand $352 thousand $2,900 thousand

Groups (n) Reporting Company Investment Information in 2014

n=21 n=0 n=21

Investments (k) and Deals (d) with Company Information

k=203, d=183 k=0, d=0 k=203, d=183

Median Investment Amount $145 thousand n/a $145 thousand

Average Investment Amount $394 thousand $128 thousand $382 thousand

Total Investment Amount (All Groups) $89.1 million $1.4 million $90.5 million


2.1 Organizational Structure

2.2 Age

2.3 Size and Composition

2.4 Services offered, Funding and Level of Activity

2.5 Trends

10

11

12

16

19


2.1 Organizational Structure

There are many ways in which Angel groups can organize themselves. Sixty percent of Canadian Angel groups were legally structured as not-for-profit organizations, while 20% were informal clubs or networks, 10% were branches of larger legal entities such as industry organizations or universities, and 7% were structured as for-profit corporations (Figure 1).

In follow-up interviews, it was revealed that the majority of Angel groups operate as networks. Angel networks invite selected applicant firms to make a pitch, but leave the subsequent investment decisions to individual members of the network. Of the 30 groups, there were as many as 29 groups that operated as a network. There was at least one group where the members were shareholders of a fund, however, the group itself had no legal structure.


Figure 1: Corporate Legal Structure (n=30)

Not-For-Profit Corporation

Not Legally Structured

Other

60%

20%10%

7%

3%

Not Legally Structured: Part of a Larger Legal Entity

For-Profit Corporation


Num

ber

of G

roup

s

7

6

5

4

3

2

1

0

Number of Years in Operation

Groups that participated in 2013 Groups New to 2014 Sample

Figure 2: Years in Operation (n=30)

1 2 3 4 5 6 7 8 9 10+ Years

2.2 Age

The Angel group/network is an established institution in the early-stage investing ecosystem in Canada7. The typical Angel group is 6-7 years old (Figure 2). Twenty four of the 30 participating groups were at least 5 years old. The four groups that were new to the survey were also new to the market, with an average age of one and half years.

The typical Angel group is 6-7 years old.

Twenty four of the 30 participating groups

were at least 5 years old.

7 In computing the age, it is assumed, for convenience, that the age of a group that formed in year yyyy is 2015 – yyyy years. For example, a group founded in 2014 is current 2015 – 2014 = 1 year old.


2.3 Size and Composition

The size of Angel groups could be measured by the number of members: the number of active members (defined as the members who are involved in at least one deal in the past 12 months) the number of investments or the amount invested.

Twenty-three groups had between 26 and 100 members and, with a few exceptions, young groups were somewhat smaller than established ones (Figure 3). Established groups are defined as groups that are at least 6 years old.

Figure 3: Number of Group Members 2014 (n=30)

Number of Group Members

11 to 25 Over 10051 to 100

Num

ber

of C

ompa

nies

12

10

8

6

4

2

0

Established Angel Groups

Young Angel Groups

New Survey Participants

26 to 501 to 10


Established groups are defined as groups that

are at least 6 years old.

Active Membership Total Membership

Total Group Members

Figure 4: Number of Active Angel Group Members (n=30)

Tota

l Act

ive

Mem

ber

s in

201

4

180

160

140

120

100

80

60

40

20

0

0 20 40 60 80 100 120 140 160 180

There is wide variation in the percentage of active members in an Angel group (Figure 4). However, having more members in a group is associated with somewhat higher investment activity (Figure 5, Panel A). There is no obvious link between geographic focus of groups and the number of investments they make (Figure 5, Panel B).

In 2014, the number of Angel groups that did at least 5 investments recovered from the decline experienced in 2013 (Figure 6). This may suggest a broader recovery in 2014 of the Angel capital market which was in decline in 20138.


8 The apparent growth of Angel groups with no deals is spurious and reflects the fact that two of the four new participants have not (yet) generated any deal flow.

Region Within a Province

Region Spanning Multiple Province/States

Do Not Invest Based on Geography

Province

Panel B: By Angel Group Regional Focus

25

20

15

10

5

0

Angel Group Size

Num

ber

of I

nves

tmen

ts M

ade

0 20 40 60 80 100 120 140 160 180

Canada

Unknown

Figure 5: Group Size and Number of Investments Made (n=30)

Panel A: By Angel Group Age

25

20

15

10

5

0

Angel Group Size

Num

ber

of I

nves

tmen

ts M

ade


Young Angel Groups


0 20 40 60 80 100 120 140 160 180


0

1-5

6-10

11-25 Investments

Figure 6: The Distribution of the Number of Investments by Angel Groups: 2012-2014

Year

Per

cent

age

of A

ngel

Gro

ups

2013 (n=29)2012 (n=20) 2014 (n=30)

100%

80%

60%

40%

20%

0%

5%45%25%25%

14%52%10%24%

17%30%23%30%

75%-100%

50%-75%

25%-50%

0-25%

Figure 7: Percentage of Angel Group Members with Entrepreneurial Background

Year

Per

cent

age

of A

ngel

Gro

ups

2013 (n=26)2012 (n=20) 2014 (n=22)

100%

80%

60%

40%

20%

0%

5%30%25%40%

4%12%35%50%

14%41%45%

Angel capital is crucial for companies for more than just the funding provided. Angels provide entrepreneurs with advice, mentorship, and access to networks. This makes the composition of Angel groups’ membership relevant. NACO routinely collects information on the percentage of members that have entrepreneurial experience.

Overall, in about 86% of Angel groups, more than 50% of members had entrepreneurial experience. Most changes over time are small, but the number of Angel groups in which at least 50% of the members have entrepreneurial experience has increased (Figure 7).


In about 86% of Angel groups, more than 50%

of members had entrepreneurial experience.

2.4 Services Offered, Funding and Level of Activity

Angel groups offer a variety of services to their members. These go well beyond networking opportunities and prospecting potential investment opportunities. Examples include training opportunities; free or inexpensive access to legal services; access to term sheet templates; advice on valuation and how to structure deals; and assistance with due diligence and negotiations with firms. From the survey and the follow-up interviews it is clear that there is a wide variation in the services that Angel groups offer.

The level of available administrative support differs substantially from group to group (Table 2). For instance, one group noted that it employs five full-time and five part-time staff, while other groups reported relying purely on volunteers from its members. There is also a substantial variation in membership fees. Young groups tend to charge smaller fees than established groups (Figure 8).

The link between the level of services offered by a group and the level of the group’s investment activity was analyzed.

A group with several full-time staff members or high membership fees is expected to offer better-quality services than a group with a low number of staff members or low membership fees. The amount invested per Angel group was regressed on the available administrative support and membership fees. The regression suggests there is a positive relationship between these two variables. Specifically, every full-time employee tends to add $1.1 million to the total invested by the group.

Seventeen Angel groups relied on sponsorships and 14 Angel groups benefited from government funding (Table 3). Angel groups that received government funding often received it from both federal and provincial levels of government. It is clear that young Angel groups, including the four new participants, were less likely to attract funding from sponsorships or government.


Young Angel Groups


Membership Fee

Figure 8: 2014 Membership Fees of Angel Groups (n=28)

Num

ber

of G

roup

s

12

10

8

6

4

2

0Free $501-750 $751-1000 $1001+$251-500$1-250

17 Angel groups relied on sponsorships and

14 Angel groups benefited from government

funding.


Table 2: Angel Group Size, Investment per Member and Employment (n=30)

Membership Fee

Region of the Angel Group

Age of the Angel Group

Group has a Formal Selection Process

# of Angel Group Members

# of Investments Made

Amount Invested (in thousands of dollars)

Amount Invested per Member (in thousands of dollars)

# of Full Time Staff

# of Part Time Staff

Angel Group Negotiates with Firms for Interested Members

Free Western Young Yes 5 0 0 0 0 1 No

Free Western New No 154 0 0 0 0 0 No

Free Western New Yes 30 7 700 23 0 0 No

Free Central Young Yes 95 7 21,900 231 3 1 Yes

Free Central Young No 12 0 0 0 0 0 Yes

Free Central Young Yes 41 4 3,300 80 0 0 Yes

Free Central Young Yes 33 4 1,525 46 1 4 No

Free Central Young No 12 2 250 21 n.r. n.r. n.r.

Free Central New Yes 16 0 0 0 0 3 Yes

Free Central New Yes 50 4 709 14 3 2 Yes

Free Central Established No 78 3 2,330 30 0 1 No

Free Central Established Yes 78 7 4,223 54 1 0 No

Free Central Established Yes 68 25 8,610 127 1 1 No

$1-$250 Western Young Yes 40 4 440 11 0 1 No

$1-$250 Western Established Yes 65 13 3,600 55 1 2 No

$1-$250 Central Young No 33 12 5,615 170 0 0 No

$1-$250 Central Established Yes 52 6 4,517 87 1 0 No

$251-$500 Western Established Yes 56 15 561 10 0 0 No

$251-$500 Eastern Established Yes 22 0 0 0 0 2 No



$501-$750 Central Established Yes 16 6 779 49 1 2 No


$751-$1000 Western Established Yes 127 24 2,795 22 0 8 No

$751-$1000 Western Established Yes 29 4 880 30 1 4 No

$751-$1000 Eastern Established Yes 85 3 602 7 3 0 Yes

$751-$1000 Central Young Yes 95 17 4,142 44 2 2 No

$751-$1000 Central Established No 22 1 205 9 0 2 No


$1001+ Central Established Yes 165 22 11,403 69 5 5 No

n.r. means the observation was not reported.


Angel Group Operational Funding Sources

Membership Fee



# of Angel Group Members

Sponsorships Funding Received from a Separate Parent Entity

Provincial Gov’t Funding

Federal Gov’t Funding

Revenue Generated from Investments Made

Revenue Generated from Events

One or More Members' Personal Funds

Free Western Young 5

Free Western New 154

Free Western New 30

Free Central Young 95




Free Central New 16

Free Central New 50

Free Central Established 78



$1-$250 Western Young 40

$1-$250 Western Established 65

$1-$250 Central Young 33

$1-$250 Central Established 52


$251-$500 Eastern Established 22







$751-$1000 Eastern Established 85

$751-$1000 Central Young 95



$1001+ Central Established 165

Total 17 3 14 14 4 5 4

Table 3: Angel Group Sources of Revenue


Table 4: Recent Developments to Angel Groups (n=26)

Location Age Members Active Members

Applications Presentations Number of Investments

Value of Investments

Western Established 30% -48% n.r. -5% -13% 12%

Western Established -86% -80% -94% -7% -20% -57%

Western Established -74% 3% -5% 35% 9% -75%

Western Established -32% n.r. -30% -40% 200% 300%

Western Young -17% 0% 0% 0% 0% n.r.

Western Young 0% 33% 11% -33% 0% -23%

Central Established 18% -5% 19% 2% 29% 65%

Central Established 32% 0% 5% 39% 29% -58%

Central Established -16% -39% -76% -27% 100% -6%

Central Established -4% n.r. -37% 0% -17% 50%

Central Established 57% 150% -11% -17% 50% 10%

Central Established 24% n.r. 850% n.r. n.r. n.r.

Central Established 33% 825% -4% -20% 50% 882%

Central Established -38% 5% 107% 3% 25% -40%

Central Established 10% n.r. -25% 0% n.r. n.r.

Central Established 26% 33% -56% 11% 75% 438%

Central Established -51% -76% -8% 13% 60% 48%

Central Young -12% -3% -34% 33% -15% -28%

Central Young 0% n.r. -30% n.r. -33% -95%

Central Young -65% -11% -33% 1150% 40% 71%

Central Young 83% 83% 20% 100% 33% 129%

Central Young 37% 78% -38% -33% -43% -55%

Central Young 0% n.r. n.r. n.r. -100% -100%

Central Young 313% 317% 11% n.r. 100% 294%

Eastern Established 6% 43% -35% 0% -25% -15%

Eastern Established -12% n.r. -52% 100% 0% n.r.

# change +10% or more 10 8 6 8 12 10

# -10% < change < +10% 6 6 5 8 4 2

# change -10% or less 10 5 13 6 8 10

Canada -31% 10% -17% 1% 17% 2%

n.r. means the observation was not reported.

2.5 Trends

A year-over-year comparison is best done by focusing on the 26 groups that participated in the survey both in 2013 and in 2014 (Table 1). Overall, membership numbers declined by 31%. However, the number of active members increased by 10%, the number of investments increased by 17%, and the amount invested increased by 2%.

The number of applications for funding declined by 17%, yet there were about the same number of investor pitches. The statistics for individual groups vary and there are always several groups that move against the general trend. For example, despite the overall decline in membership numbers, 9 of the 26 groups saw their membership numbers increase (Table 4).


3.1 Geographical and Sector Focus

3.2 Applications, Presentations, and Funding

21

23


3.1 Geographical and Sector Focus

Most groups indicated that they have a geographic focus (Figure 9). No group reported that it focused on a single city. But the geographic focus of half the groups was still either a region within the group’s province (30%)

or the entire province (20%). Other groups indicated that their focus spanned multiple provinces or states (17%), Canada (10%); or that they had no geographic focus (20%).

Figure 9: Angel Group Geographical Focus (n=30)

Region Within a Province

Region Spanning Multiple Province/States

Do Not Invest Based on Geography

Province

Canada

Unknown

20%

30%

3%

17%

10%

20%



Table 5: Sector Focus of the Angel Groups (n=29)



Sector Focus

Life Sciences

ICT Clean Tech Manufacturing Services Energy Other

Western New No

Western New Yes

Western Established No




Western Young No

Western Young Yes

Central New No

Central New Yes

Central Established No



Central Established Yes








Central Young Yes

Central Young Yes

Total 14 27 27 23 22 16 19 15

Fourteen of the 30 groups (47%) reported having a sector focus (Table 5). Despite this, the bulk of Angel groups, including those that reported having a sector focus, were open to investments in multiple industries. Seven of the 30 Angel groups (24%) had a narrower focus on three or fewer industry sectors. In 2013, as many as 13 (48%) of the 27 Angel groups reported that their group focused on three or fewer industries. Angel groups seemed to have widened their reach. In their majority, Angel groups were open to opportunities in Life Sciences, ICT, Clean Tech,

and Manufacturing; and a little over half of the groups would consider investing in Services, Energy and “Other” industries. Angel groups in the more “crowded market” of Central Canada, were more likely to have a sector focus, which is particularly true for young groups.


The bulk of Angel groups were open to

investments in multiple industries.

3.2 Applications, Presentations, and Funding

In 2014, 30 Angel groups received 2,972 applications. Twenty four of those groups scheduled 695 company presentations to the group members and 25 groups made 237 deals (Figure 10).

3.2. Applications, Presentations, and Funding

Based on data provided by 22 groups, presentation rates, funding rates and application success rates were analyzed. Presentation rate is defined as the ratio of presentations and total number of applications. Funding rate is defined as the percentage of presentations that resulted in a deal. Finally, the application success rate is defined as the percentage of applications that resulted in a deal.30 Angel groups received 2,972 applications

leading to 25 groups funding 237 deals.

2972

695*

271

237

Figure 10: Funding Success Funnel (n=30)

* Based on 24 of the 30 groups that reported the number of presentations held

Applications

Due Diligence

Presentations

Funded


Figure 11: Company Selection by Angel Group (n=22)

Angel Group

Rat

e P

erce

ntag

e

100%

80%

60%

40%

20%

0%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Presentation Rate (# Presentations / # Applications)

Funding Rate (# Funded / # Presentations)

Application Success Rate (# Funded / # Applications)

Presentation rates differed substantially among groups, with some groups reporting 100% presentation rates. These groups do not appear to carry out any screening

on behalf of their members. Other groups appeared to be highly selective, only allowing a small percentage of applicants to present to their group members (Figure 11).


There is also notable variation among groups in terms of funding rates and application success rates. The more selective groups tended to report high funding rates, while the less selective groups tended to report low funding rates. A negative relationship appears to exist between the presentation rate and the funding rate (Figure 12). A similar pattern was observed in 2013.

Company presentations at selective Angel groups more often resulted in an investment. Clearly, the selection processes implemented at some of the more selective groups resulted in higher quality presentations and could be deemed a valuable service for the groups’ membership.

Figure 12: Group Investments and Presentation Rate

Presentation Rates of Canadian Angel Groups

Tota

l Dol

lars

Inve

sted

(mill

ions

of $

)

Tota

l Inv

estm

ents

$50

$40

$30

$20

$10

$-

120

100

80

60

40

20

0

Total Dollars Invested Total Investments

1-20% 61-80% 81-100%41-60%21-40%0%


4.1 Overview

4.2 Breakdown by Number of Investments

4.3 Breakdown of Amount of Investment

4.4 Deal Structure

4.5 Investment Amounts

4.6 Co-Investment Activity

4.7 Syndication

4.8 Deal Size

4.9 Valuations

4.10 Comparison with the US Angel Capital Market

4.11 Distance from the Angel Group

4.12 Stage of Development

4.13 Company Size

4.14 Assistance through Government Programs

27

29

33

36

38

39

41

43

45

47

49

50

50

51


4.1 Overview

The total amount of Angel investment captured by the surveys increased from $40.5 million in 2012 to $88.7 million in 2013 to $90.5 million in 2014 (Figure 13). This is due in part to an increase in the number of respondents.

To estimate the growth of the visible Angel capital market, the comparison sample was introduced in the 2013 report. It was argued that this comparison sample produced a

reasonable estimate of the growth of the visible Angel market. In 2013, the comparison sample consisted of 17 groups that participated in both the 2012 and the 2013 survey. It was concluded that, between 2012 and 2013, the visible Angel capital market in Canada had contracted by 13%.

Figure 13: Amounts of Investments: 2012-2014

New

Follow-on

Unspecified

Inve

stm

ent A

mou

nt (m

illio

ns o

f $)

$90

$80

$70

$60

$50

$40

$30

$20

$10

$-

Year

2013 (n=25, k=199)

2014 (n=25, k=237)

2012 (n=19, k=139)

7.34.3

28.9

28.861.7

45.65.7

37.4



In 2014, the comparison sample consisted of 26 groups that participated in the survey in both 2013 and 2014 (Table 1). The growth rate of the visible Angel capital market in 2014, based on the comparison sample (Figure 14), was 2%9.

Furthermore, the amount invested in follow-on investments grew between 2012 and 2013 but shrank between 2013 and 2014. Conversely, new investments declined between 2012 and 2013 but increased between 2013 and 2014 (Figure 14).

New

Follow-on

Total

Figure 14: Growth of the Visible Angel Capital Market in Canada

Gro

owth

Rat

e

66%

2%

-47%

168%

-13% -37%

2013 (n=17)

2014 (n=26)

The visible Angel capital market grew 2%

in 2014.

9 Not shown in the figure is that numbers of investments, which increased by as much as 17% (see Table 4).


4.2 Breakdown by Number of Investments

The median and average number of investments per Angel group in 2014 were 6.0 and 7.6, respectively (Table 1). The figures for 2013 were 5.0 and 6.9, respectively. The number of investments was not collected prior to 2013.

Based on 198 investments for which industry information is available, more than half of the investments in 2014 were made in ICT companies, and about a fifth in Life Sciences companies (Figure 15). “Other” sectors attracted 10% of the deals, followed by manufacturing with 7% and Clean Tech with 5%.

A quarter of the 237 investments in 2014 were follow-on (beyond first-time, even if by different investors in the Angel group), clearly lower than their 33% share in 2013 (Figure 16). New investments (defined as the first time any of the Angel group members invests in the company) represented 75% of the total (Figure 16).

Of 237 investments, 25% were follow-on and

75% were new.

Figure 15: Percentage of Investments: Total Number of Investment by Sector: 2012-2014

Life Sciences

Services

Manufacturing

Clean Tech

Energy

ICT

Other

Year

Per

cent

age

of In

vest

men

ts

2013 (k=134)2012 (k=110) 2014 (k=198)

100%

80%

60%

40%

20%

0%

7%53%18%

22%

3%59%24%

12%

5%55%22%7%0%10%

0%

Figure 16: Number of Investments: 2012-2014

New

Follow-on

Unknown

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Year

2013 (n=25, k=199)

2014 (n=25, k=237)

2012 (n=19, k=139)

Per

cent

age

of In

vest

men

ts

22%5%

73%33%2%

65%25%75%


Like last year, most investments were made in Central Canada, but Western Canada (BC, AB, SK) had a vibrant local Angel capital market as well (Figure 17, Panel A), considering its smaller population compared to Central Canada (Figure 17, Panel B). Groups in Central Canada participated in more follow-on investments (28%) than Angel groups in the West (18%), a pattern observed in 2013 as well.

New Follow-on

Figure 17: Panel A: Number of Investments by Region (n=30)

Central Canada (70% of

Investments)

Eastern Canada (2% of

Investments)

180

160

140

120

100

80

60

40

20

0

Western Canada (28% of

Investments)

Num

ber

of In

vest

men

ts

18%82%

33%67%

28%72%

New Follow-on

Panel B: Number of Investments per Million of People (n=30)


Investments)


Investments)

9.0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0


Investments)

Num

ber

of In

vest

men

ts

18%82%

33%67%

28%72%

Most investments were made in Central

Canada, but Western Canada had a vibrant

local Angel capital market as well.


Top 5 Young Canadian Angel Groups by Number of Investments in 2014

XDL Capital Group Ontario

Mistral Venture Partners Ontario

iGan Partners Ontario

Omega Star Ontario

Saskatchewan Capital Network Saskatchewan

Angel One Investor Network Ontario

2013 Rank

N/A

N/A

N/A

N/A

N/A

N/A

4

4

1

4

3

2

1

Top 5 Canadian Angel Groups by Number of Investments Made Made in 2014

VA Angels Alberta

Capital Angel Network Ontario

Northern Ontario Angels Ontario

2013 Rank

4

New

4

1

1

Anges Québec Quebec

Angel One Investor Network Ontario5

1

4

3

2

1


Figure 18: Investments and Membership by Region in 2014

= 5% of Membership Distribution

Number of Investments Made in 2014

Value of Investments Made in 2014

Western Canada

Central Canada

Eastern Canada

506 Investors $9.0 million in 67 investments

28% 10%

70% 89%

2% 1%

1,094 Investors $81.0 million in 167 investments

107 Investors $0.6 million in 3 investments


They were:

1. Information and Communication Technology (ICT)

2. Life Sciences

3. Clean Technology

Thirty-two percent of all investment amounts went to follow-on investments, and 68% were in new investments (Figure 20). The amount invested in follow-on investments grew substantially between 2012 and 2013, but shrunk between 2013 and 2014. The reverse trend was observed for the amount invested in new investments.

4.3 Breakdown of Amount of Investment

Life Sciences and ICT attracted 83% of the total amount invested by Angel investors in 2014 (Figure 19). There is a major difference between the number of investments and amounts invested. Despite a higher number of investments in the ICT industry than in the Life Sciences industry, both sectors received similar investment amounts. The average investment size was greater for Life Sciences. In the visible Angel market, the top three sectors in 2014 in terms of total Angel investment amounts remained unchanged.

Life Sciences and ICT attracted 83% of the

total amount invested by Angel investors in

2014.

Figure 19: Percentage of Investments: Total Amount of Investments by Sector: 2012-2014

Life Sciences

Services

Manufacturing

Clean Tech

Energy

ICT

Other

50%21%

8%45%33%7%

13%42%41%

3%

Year

Per

cent

age

of In

vest

men

ts

2013 (k=134)2012 (k=110) 2014 (k=197)

100%

80%

60%

40%

20%

0%

21% 10%

Figure 20: New/Follow-on Composition of Investments by Investment Amount, 2012-2014

18%11%

71%51%6%

42%32%0%

68%

New

Follow-on

Unspecified

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Year

2013 (n=25, k=199)

2014 (n=25, k=237)

2012 (n=19, k=139)

Per

cent

age

of In

vest

men

ts


Figure 21: Panel A: Investment Amount by Region (n=30)

Inve

stm

ent A

mou

nt (m

illio

ns o

f $)

$90

$80

$70

$60

$50

$40

$30

$20

$10

$-

Region


$ Invested)


$ Invested)


$ Invested)

9%91% 7%

93%

35%65%

Central Canada was dominant in terms of investment amounts (Figure 21, Panel A). Furthermore, investment size in Central Canada was larger than elsewhere in Canada with Central Canada Angel groups investing

more in follow-on investments than elsewhere in Canada. Per capita investment amounts in Central Canada are also at least four times as high as elsewhere in Canada (Figure 21, Panel B).

New Follow-on New Follow-on

Panel B: Investment Amount per Millions of People (n=30)

9%91%

7%93%

35%65%

Inve

stm

ent A

mou

nt (m

illio

ns o

f $)

$4.0

$3.5

$3.0

$2.5

$2.0

$1.5

$1.0

$0.5

$-

Region


$ Invested)


$ Invested)


$ Invested)


Top 5 Canadian Angel Groups by Dollar Amount Invested in 2014

Golden Triangle Angel Network Ontario

Anges Québec Quebec


Northern Ontario Angels Ontario


2013 Rank

New

5

New

1

2

5

1

4

3

2

1

Top 5 Young Canadian Angel Groups by Dollar Amount Invested in 2014

2013 Rank

N/A

N/A

N/A

N/A

N/A


Omega Star Ontario

Angel One Investor Network Ontario

Mistral Venture Partners Ontario


5

1

4

3

2

1


4.4 Deal Structure

Information on the financial instruments used by Angel investors was reported by 14 Angel groups for 100 investments. The most commonly used financial instruments were common shares (44%), preferred shares (35%), and convertible debentures (11%) (Figure 22). The data show that most groups worked with one or two different instruments.

4%1%

44%

5% 11%

35%

Figure 22: Deal Structure (n=14, k=100)

Common Shares

Other

Loan (Debt)

Preferred Shares

Multiple Securities

Convertible Debenture

The most commonly used financial instruments

were common shares (44%), preferred shares

(35%), and convertible debentures (11%).


4.5 Investment Amounts

The median amount invested was $160,000, while the average was more than twice as large ($384,000) (Figure 23). The regional breakdown in 2014 shows that Central Canada-based Angel groups made the largest

4.5. Investment Amounts

investments in companies. Across Canada in 2014, the median investment amount had decreased by 23% between 2013 and 2014, from $209,000 to $160,000 (Figure 23).

(k=9) (k=98)(k=20)

Western Canada Central Canada Eastern Canada Canada

(k=135)(k=43) (k=164) (k=3) (k=4) (k=3) (k=110) (k=159)(k=210)

600

500

400

300

200

100

0

Region

383

137 175 209160135 134175 175

215 200

100

Med

ian

Am

ount

(tho

usan

ds o

f $)

Figure 23: Investment Amounts by Region: 2012-2014

Panel A: Angel Group Medians (per Investment)

2012 2013 2014

2012 2013 2014

(k=24) (k=112)(k=60)

Western Canada Central Canada Eastern Canada Canada

(k=135)(k=66) (k=167) (k=3) (k=4) (k=3) (k=139) (k=199)(k=236)

600

500

400

300

200

100

0

Region

283223

292

446384

176 201

305 298

516 485

136

Ave

rage

Am

ount

(tho

usan

ds o

f $)

Panel B: Angel Group Averages (per Investment)


Figure 24: Investment Amounts by Industry Sector: 2012-2014 Panel A: Angel Group Medians (per Investment)

2012 2013 2014

Med

ian

Am

ount

(tho

usan

ds o

f $)

(k=57, 78, 108) (k=103, 32, 43) (k=8, 5, 9) (k=18, 19, 37)

ICT Life Sciences Clean Tech Other

700

600

500

400

300

200

100

0

Industry Sector

238 250 244

118 125

250 240

573

125180

125

250

2012 2013 2014

Panel B: Angel Group Averages (per Investment)

Ave

rage

Am

ount

(tho

usan

ds o

f $)

Industry Sector

(k=58, 78, 108)

ICT Life Sciences Clean Tech Other

(k=103, 32, 43) (k=8, 5, 9) (k=18, 19, 37)

368306 326

642

348

810 1587

385

257302271

323

700

600

500

400

300

200

100

0

The median investment amount in the Life Sciences was the largest at $250,000 in 2014 due to few large investments. It was twice as large as in ICT and Clean Tech (Figure 24).

The median investment amount in ICT has been decreasing since 2012, while the average has stayed approximately the same. However, the median invest-ment amount in the Life Sciences has been flat, while the average has increased substantially in the last three years.


4.6 Co-Investment Activity

In this report, co-investment refers to the scenario when multiple investors from the same Angel group participate in the same investment. Co-investment information gathered has traditionally been satisfactory and in 2014,

it was available for 136 investments. Co-investment happened in 65 percent of these investments (Figure 25). Thirty five percent of investments involve only one investor.

11-20

21+

1

2

3

4

5

6-10

Figure 25: Number of Angel Group Members Involved in the Same Deal

Per

cent

age

of In

vest

men

ts

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Year

2013 (k=128)

2014 (k=136)

2012 (k=93)

17%

6%11%

6%20%16%

33%12%

9%

8%5%

9%

13%4%

40%21%

8%

7%2%

5%

18%4%

35%

1%

35% percent of investments involve only one

investor. The most common co-investment

situation is co-investment with just one other

group member (21%).


Number of Co-investors

Figure 26: Co-investment Group Size and Angel Group Investment Amount (k=136)

Am

oun

t In

vest

ed (m

illio

ns o

f $)

$3.5

$3

$2.5

$2

$1.5

$1

$0.5

$-

1 3 4 5 6-10 11-20 21+2

The most common co-investment situation is co-investment with just one other group member (21%). Yet, there is plenty of variation. For example, in 9% of the investments over 10 members co-invest.

While there are plenty of exceptions, the rule seems to be that having a greater number of co-investors makes for greater investment amounts (Figure 26).


Figure 27: Types of Syndication Partners in 2014

Angel Capital

Angels & Government

Government & Banks

Government

Angels, VCs & Strategic Partners

Angels & VCs

Other

VC

Not Syndicated (k=40)

Syndicated, Partner(s) Known (k=83)

Syndicated, Partner(s) Unknown (k=37)

49%

1%1%

2%4%

16%

12%

15%

4.7 Syndication

In this report, syndication refers to when Angel group members invest together with outside parties. Angel groups reported syndication information for 160 of the 237 investments, and indicated that 120 of these 160 deals (75%) involve syndication. For 37 of the 120 syndicated deals, the syndication partner was unknown (Figure 27). For the remaining 83 deals, Angel groups had a variety

ication

of syndication partners, with about half (49%) of the deals involving syndication with outside Angel groups, 15% involving VCs, 12% involving Government, and another 16% involving “Other” syndication partners. Syndication with multiple parties outside the Angel group took place in 8% of the investments.10

10 Comparing the 2013 and the 2014 syndication results is not straightforward for two reasons. First, the questions as well as the set of available answers were changed in the 2014 survey. Secondly, the identity of the syndication partners was known in only 38 of the 199 (19%) of the transactions in 2013. Yet, taking these 38 answers at face value, and comparing with the 2014 data would show that syndications with Angels outside the group as well with VCs were both more common in 2013 than in 2014.

75% of deals involve syndication. Angel groups had a variety of syndication

partners, with about half (49%) of the deals

involving syndication with other Angels.


In 2014, the median amount contributed by syndication partners was $500,000, up from $415,000 in 2013, but on par with the 2012 figure (Figure 28). The average investment by syndication partners almost doubled during 2012-2014. This implies that while syndication might not play a larger role in a typical (median) investment, its importance might have increased for a few large deals.

Year

Figure 28: Investment by Syndication Partners 2012-2014

500

Dea

l Siz

e (th

ousa

nds

of $

)

1200

1000

800

600

400

200

0

2013 (k=76)

2014 (k=104)

2012 (k=57)

553 1,062

415

825

789500

Median Average


4.8 Deal Size

For the 217 deals reported in 2014, information on deal size was available for 144 deals. The median deal size has somewhat recovered from its sharp drop in 2013. At about $1.2 million, the average deal size was substantially larger than in 2012 and 2013 (Figure 29).

For syndicated deals, the median and average deal sizes in 2014 were about $883,000 and $1,492,000, respectively (Table 6), masking a wide variation between a minimum of $33,000 and a maximum of $10 million. Median and average deal sizes associated with follow-on investments were not larger than deal sizes associated with new investments. Deal sizes in Life Sciences (Median=1.4 million, Average = 2.2 million) were twice as large as those in ICT

(Median=0.7 million, Average = 1.1 million), while deal sizes for pre-revenue companies and post-revenue companies were about the same.

Deal sizes depend on the type of syndication partner (Figure 30). Syndications with other Angel capital (i.e. other Angel groups, Angel funds, or individual Angels outside the group) can lead to quite substantial rounds. The median deal size of $1.0 million for deals syndicated with other Angel capital is only slightly below the median deal size when Angels syndicate with VCs. Syndications with a Government party are associated with smaller deals (Median=$0.4 million).

Year

Figure 29: Deal Sizes: 2012-2014

500

Dea

l Siz

e (th

ousa

nds

of $

)

1400

1200

1000

800

600

400

200

0

2013 (k=104)

2014 (k=144)

2012 (k=57)

825919

945

Median Average

1229698

At about $1.2 million, the average deal size was

substantially larger than in 2012 and 2013.

Deal sizes in Life Sciences were twice as large

as those in ICT.


1000

Median

Figure 30: Deal Sizes for Syndicated Investments in 2014

Dea

l Siz

e (th

ousa

nds

of $

)

2000

1800

1600

1400

1200

1000

800

600

400

200

0

Unknown (k=36)

VC (k=13)

Other Angel

Capital (k=30)

Government (k=15)

Non-Angels (k=39)

Others (k=13)

Total Syndicated

(k=104)

1492

1188

425

815

1373

1670

756 756748

1808

1045

1655

883

Average

Table 6: Deal Size Statistics (thousands of $)

Categories Sample Size Median Average Minimum Maximum

All Investments k=144 698 1229 15 10400

Syndicated k=104 883 1492 33 10400

Non-syndicated k=40 220 547 15 3500

New k=105 695 1208 15 10400

Follow-on k=39 725 1285 30 6000

ICT k=70 650 1041 15 9914

Life Sciences k=35 1400 2002 50 7500

CleanTech k=7 125 346 100 1042

Other k=31 500 1021 25 10400

Unknown k=1 50 50 50 50

Pre-Revenue Companies k=40 804 1550 30 7500

Post-Revenue Companies k=46 870 1098 40 4950

Unknown k=58 441 1112 15 10400

0-5 Employees k=44 530 1010 30 5000

6-10 Employees k=22 853 1203 50 4000

11+ Employees k=30 1478 1894 160 75000

Unknown k=48 313 1027 15 10400


4.9 Valuations

Collecting company valuations continues to be a challenge. Angel group managers reported company valuations for 56 of the 217 deals. The median and average valuations in 2014 were $4.0 million and $5.6 million, respectively (Figure 31, Panel A). Compared to valuations reported for the United States in the Halo report, Canadian valuations were somewhat higher. Yet they were not as high as in 2013 when the median valuation was $5.0 million and the average was $6.1 million.

4.9. Valuations

Follow-on investments tended to be associated with higher valuations (Figure 31, Panel B). The median valuation was $4 million for new investments and approximately $5.9 million for follow-on investments. Last year, almost all valuations that were below $2 million involved new investments. With five follow-on investments of $2 million or less, this is certainly not the case in 2014.

The high valuations in Canada were not due to a “Life Sciences sector effect” (Figure 31, Panel C). The data show that the average valuation in Life Sciences is higher (because of the relatively many deals in the $10M+ range), but also shows that median valuations were $4 million for both ICT and Life Sciences. A possible explanation for the higher valuation in Canada could be selection bias. Survey respondents only knew valuations for 56 of the 237 deals, and could have a tendency to only remember the deals with higher valuations.

The median and average valuations were

$4.0 million and $5.6 million, respectively. In

2013, the median valuation was $5.0 million

and the average was $6.1 million.

Figure 31: Company Valuations (k=56)

Panel A: Overall Distribution

Valuation (millions of $)

$2-4M $4-6M $6-8MUp to $2M $8-10M $10+M

Num

ber

of In

vest

men

ts

18

16

14

12

10

8

6

4

2

0

Median: $4.0 M

Average: $5.6 M


Panel B: New Versus Follow-on

New Follow-on

New Investments


Follow-on Investments

$2-4M $2-4M$4-6M $4-6M$6-8M $6-8MUp to $2M Up to $2M$8-10M $8-10M$10+M $10+M

Num

ber

of In

vest

men

ts

18

16

14

12

10

8

6

4

2

0

Median: $2.6 M

Average: $4.0 M

Median: $5.9 M

Average: $8.2M

ICT


Other

Num

ber

of In

vest

men

ts

18

16

14

12

10

8

6

4

2

0

$2-4

M$4

-6M

$6-8

M

Up to

$2M

$8-10

M

$10+

M

$2-4

M$4

-6M

$6-8

M

Up to

$2M

$8-10

M

$10+

M

$2-4

M$4

-6M

$6-8

M

Up to

$2M

$8-10

M

$10+

M

Panel C: By Industry Sector

Median: $4.0 M

Average: $7.1 M

Median: $4.0 M

Average: $4.7 M

Median: $2.7 M

Average: $5.5M

Life Sciences

ICT Life Sciences Other


4.10 Comparison with the US Angel Capital Market

Data on the US Angel capital market is published by the Angel Resource Institute in the Halo Report. The Report on Angel Investing Activity in Canada has a more comprehensive coverage. Canadian statistics are compared with the US statistics for the year 2014 where possible.11

ICT and Life Sciences are by far the most important sectors for both the Canadian and US Angel capital markets. In the US, “Internet”, “Mobile & Telecom”, and “Software” combined, attract 54.1% of deals. This is almost identical to the 55% share of ICT in the total number of deals (Figure 15). “Healthcare” attracts 18.3% of investments in the US, while the figure in Canada is 22%. In terms of amounts, the Halo Report indicated that 57.8% of all investment went towards one the three ICT sub-sectors, while the percentage for ICT in Canada is 42% (Figure 19). Life Sciences investments attracted

41% of total invested amounts in Canada and 24.8% in the US. In conclusion, in both countries ICT is the primary and Life Sciences the secondary recipient of funding by Angel groups. In relative terms ICT appears to be an even more important sector for the US than for Canada, while the Life Sciences sector is relatively more important for the Canadian Angel capital market.

The median deal size of Canadian investments in ICT companies was C$650,000, while the median deal sizes for US investments into Internet and Mobile/telecom companies were C$1.32 million and C$1.36 million, respectively (Table 6). The median deal size of Canadian investments in Life Sciences companies was C$1.40 million, while the median deal sizes for US investments into this industry was C$2.21 million. Deal sizes are therefore much larger in the US. For ICT deals, they are about double the Canadian deal sizes. However, Healthcare deals are close to 60% larger in the US.

11 The 2014 ARI Halo Report was released on April 15, 2015. It was based on 870 deals reported by US Angel groups. See http://www.Angelresourceinstitute.org/Research/Halo-Report/Halo-Report.aspx.12 All USD values reported in the 2014 Halo Report are converted to CAD based on the average 2014 exchange rate of 1.104, as identified by the Bank of Canada: http://www.bankofcanada.ca/stats/assets/pdf/nraa-2014-en.pdf

In both the US and Canada, ICT and Life

Sciences are top recipients of funding.Deal sizes are much larger in the US. For ICT

deals, they are about double the Canadian

deal sizes. For Healthcare deals, they are

close to 60% larger.


Last year’s report also showed much smaller deal sizes in Canada than in the US. Syndication could be part of the explanation, but the proportion of the US investments that are syndicated is unknown. The Halo report does publish deal size for investments that are syndicated with non-Angels.

The median deal size for such Canadian investments is C$0.76 million, while the corresponding US deal size is close to three times as large, namely C$2.21 (Figure 30). Investments that only involve Angels could be made by just Angel group members (in this case the deal size equals the Angel group commitment – see line 3 of Table 6), or there could be syndicated with Angels outside the group. An analysis of the Canadian data reveals that the median deal size in Canadian Angel-only deals was C$0.43 million, while the US Angel-only deal size was C$0.88 million, just over double the Canadian deal size amount. In conclusion, deal sizes are much smaller in Canada than in the US. Both Angel-only investments and deals that are syndicated with VCs, government, or “Other” investors contribute to this outcome.

With Angel group deal sizes being much smaller in Canada than in the US, it is expected that valuations are much smaller in Canada as well. However, last year the reported Canadian valuations were substantially higher than those reported in the US. Median company valuation of C$4.0 million was associated with Canadian deals (Figure 31), while the figure for the US was C$3.3 million. In 2014 the reported valuations of companies backed by US Angel groups are 17 percent lower than the reported valuations in Canada.

The reported valuations of companies backed

by US Angel groups are 17 percent lower than

the reported valuations in Canada.

13 A possible (yet untestable) explanation for the higher-than-US Canadian valuations is sample selection. The survey respondents only report valuations for 56 of the 237 company investments. It is possible that there are disproportionately many high-valuation deals among the valuations that respondents know. If so, there would be an upward bias in the reported valuations for Canada.


4.11 Distance from the Angel Group

A common finding in the literature on Angel investing is that the majority of Angel investments are made by local investors. Perhaps this is because it is easier to add value through advice and monitoring when located nearby. Or it could be that a possible bias against placing an investment at a distance exists during the investment selection stage. However, more recent studies show that a substantial minority of Angels are no longer located near portfolio companies, which points to a more subtle role for distance in the Angel capital market.

4.11. Distance from the Angel Group

Data on the distance between the Angel group and the investee company was available for 168 deals. The bulk of Angel group deals targeted firms in the same city (36%) or elsewhere in the province (55%). A small number of deals targeted firms outside the province (8%) or abroad (1%) (Figure 32). While most deals were made within the province, there were fewer deals in the same city than in the past. In 2012 and 2013 over half of the deals were located in the same city.

Figure 32: Distance of Companies from Angel Groups: 2012-2014

Year

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

2013 (k=139)

2014 (k=168)

2012 (k=92)

Per

cent

age

of C

ompa

nies

Same City

Rest of Canada

Same Province (Different City)

International

41%3%

56%38%6%

52%

4%

55%8%

36%

1%

The bulk of Angel group deals targeted firms

in the same city (36%) or elsewhere in the

province (55%).


4.12 Stage of Development

Angels are sometimes assumed to play a particularly important role in the very early stages of company development, whereas venture capital investors are known to gravitate towards “later-stage” startups. This survey collected a rudimentary measure of firm development stage for 103 of the 217 reported deals. Of the 103 deals, 45% were in pre-revenue and 55% in post-revenue companies. In 2013, the percentage of investments in pre and post-revenue companies were 46% and 54%, respectively.

4.13 Company Size

The largest proportion (45%) of deals was in very small firms with 1–5 full-time-equivalent employees (FTE) at the time of investment. Companies with 6-10 FTEs and 11-25 FTEs each received about 25% of the amount invested by Angel groups in 2014, while 6% of the investee companies had more than 25 employees (Figure 33). The size distributions for 2012 and 2013 look similar to that of 2014 (Figure 33).

Figure 33: Company Employees at Investment Moment 2012-2014

1 to 5

6 to 10

11 to 25

26 to 50

51+

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Year

2013 (k=55)

2014 (k=111)

2012 (k=87)

Per

cent

age

of C

ompa

nies

18%26%3%2%

49%31%24%

44%

1%

25%24%

45%

5%1%

The largest proportion (45%) of deals was in

very small firms with 1–5 FTE employees at

the time of investment.


4.14 Assistance Through Government Programs

Angel group managers reported that 28% of their investments (67 of the 237) were placed in companies that benefited from government programs, while the figures for 2012 and 2013 were 38% and 22%, respectively (Figure 34). The actual uptake of government programs is almost surely higher than 28% as many managers fail to answer this question. Figure 34 provides an overview of the programs used.

The British Columbia Small Business Venture Capital Tax Credit and the Scientific Research & Experimental Development (SR&ED) supported all seven BC companies that reported receiving a benefit from a government program. The Industrial Research Assistance Program (IRAP) program supported six of these seven companies (86%).

4.14. Assistance through Government Programs

The Nova Scotia Government’s Equity Tax Credit program supported two of five (40%) Nova Scotia-based companies. All companies were supported by the Atlantic Canada Opportunities Agency (ACOA) program (100%).

There were 53 Ontario-based companies for which government program data were reported. In 33 of these 53 companies (62%), the Investing in Business Innovation program of FedDev Ontario was leveraged. The Northern Ontario Heritage Fund Corporation (NOHFC) supported 10 companies (19%), the Ontario Centres of Excellence (OCE) program supported six companies (11%), while the Health and Technology Exchange (HTX) supported one company (2%).

Figure 34: Government Programs Leveraged (k=68)

Government Program

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Per

cent

age

of D

eals

56%52%

Scientific Research and Experimental

Development (SRED)

Industrial Research Assistance Program (IRAP) at the NRC

36%

Programs with Provincial/Regional

Scope


5.1 Method of Exit

5.2 Time to Exit

5.3 Return on Investment

53

54

54

5 | Exits in 2014

An exit takes place when current investors in a company divest their shares such in an IPO, or a merger and acquisition (M&A). Current investors can also divest after another shareholder, or even a company insider, makes an offer. The survey attempts to track all these types of exits as well as bankruptcies. However, capturing exit data remains a challenge as only 10 exits were reported in the 2014 survey.

5.1 Method of Exit

Ten groups reported exits from nine companies (Table 7). There was one IPO in 2014 by a Life Sciences company. Of the nine M&A’s, there were six in ICT (5 companies), two in Manufacturing, and one in “Other Industry”. Three ICT companies were reported to have gone out of business in 2014.

Table 7: Investment Outcomes Occurring in 2012-2014

IPO M&A Sale to New or Existing Shareholders

Company Ceased Operations

2014 1 9* 0 3

2013 1 4** 3*** 4

2012 1**** 2 4 2

* Nine exits were reported by the Angel groups, but from eight companies as one of the companies received funding from two Angel groups in our survey

** Four exits were reported by Angel groups, but from three companies as one of the companies received funding from two Angel groups in our survey.

*** Including one that was discovered after the release of the 2013 Report on Angel Investimg Activity in Canada

**** Discovered after the release of the 2012 Report on Angel Investimg Activity in Canada

5 | Exits in 2014

Ten groups reported exits from nine

companies. There was one IPO and nine

M&A’s.


5.2 Time to Exit

An analysis of the length of time Angel investors held companies in their portfolio revealed that in four cases the investors had acquired the shares recently (in 2013 or 2014), which translate into a maximum of 2 years of holding time. In three cases, investments were made in 2009 or before (Figure 35) which indicates a holding period of 5 years or longer.

5.3 Return on Investment

It is not possible to give any useful feedback about the return on Angel deals. The volume of exits is quite small and return statistics are unfortunately not reported.

Figure 35: Length of Time to Exit or Bankruptcy (k=13)

Year of Original Investment

2013 2012 20112014 2010 2009 or Prior

Num

ber

of E

xits

4

3

2

1

0

IPO

Sale to New or Existing Shareholders

M&A

Company Ceased Operation

2 2 1

1

1

21

11

1


6.1. Methodology

6.2. Profile of Canadian Firms at the Year They First Receive Angel Financing

6.3. Performance of Angel-Backed Firms in 2012

56

57

61

6 | Economic Profile of Angel-Backed Firms14

6.1 Methodology

A longitudinal dataset of Angel-backed firms was created by linking 155 companies identified in NACO’s Canadian Angel Group Surveys of 2010, 2011 and 2012 to the Business Register at Statistics Canada.15 There were 110 firms that were successfully matched to the Business Register out of the 155 firms in the NACO dataset, which translates into a 71% match rate.

Officials at Statistics Canada were provided with the necessary identifiers to gather financial and employment data. Payroll remittance forms (PD7) were used for employment and payroll data, which employers are typically required to submit to the Canada Revenue Agency each month or each quarter. Corporate balance sheet information and income statement data are provided from the annual corporate income tax returns (T2). The variables that were made available from this source are: Total Revenue, Total Expenses, Net Income, and Research & Development expenditures16.

The list of Angel-backed firms was divided according to the year the firm received its first round of Angel financing into cohorts (2010-2012). Descriptive tables were generated describing the economic profile of each cohort in terms of revenue, employment, R&D spending, wages and salaries paid, and profitability. To further preserve confidentiality, these profiles were aggregated into a single profile for the three cohorts. The results of this analysis are presented in section 6.2.

The performance of surviving Angel-backed firms in 2012 was also compared to that of three groups of similarly-sized17 firms. These groups are: (1) firms in the Manufacturing sector; (2) firms in the Professional, Scientific and Technical Services sector; and (3) all R&D active firms. Only firms with 100 employees or fewer were included in the comparator groups. The results of this analysis are presented in section 6.3.

It should be noted that at no point in the project, were Industry Canada or NACO researchers able to view micro-level data for individual firms. Statistics Canada abides by the highest standard to protect the confidential nature of these data.

There was a 71% match rate between

companies in the Business Register and

companies in the NACO dataset.

6 | Economic Profile of Angel-Backed Firms14

14 This Section was developed by Industry Canada. The longitudinal data from the NACO 2010-2012 surveys were linked to administrative databases by Statistics Canada. An analysis was performed on aggregated data to generate the descriptive statistics reported in this chapter. All micro-data from Statistics Canada is confidential and is not observable by any Industry Canada or NACO employee.15 The list of 155 firms was linked to the Business Register through an automated and manual matching process based on the name and address of the firms. To increase matching accuracy, the firms were matched to the year in the Business Register corresponding to the year they first entered the NACO database, which usually corresponds to the first year they received Angel funding. The study covers 2010-2012 because at the time of the analysis, Statistics Canada firm level databases only extended to 2012.16 This study used the amount that companies claimed for the Scientific Research and Experimental Development (SRED) tax credit. 17 Small firms are those that employ 1 to 100 employees. All Angel-backed firms from the 2010 to 2012 surveys were small that were successfully matched were small.


6.2 Profile of Canadian Firms at the Year They First Receive Angel Financing

A large proportion of Angel-backed firms were R&D performers18

Of the 110 firms in the dataset, 67 (60%) reported R&D spending in the year they first received Angel financing. Furthermore, 46% of R&D active Angel-backed firms dedicated between 10% and 30% of their total expenses to R&D activity, while a third dedicated more than 30% (Table 8). These firms also spent substantial amounts on R&D activity on a per-employee basis, with 56% of them dedicating $40,000 or more per employee to R&D activity (Table 9).

56% of Angel-backed firmed dedicated

$40,000 or more per employee to R&D activity.

18 Reported at least $1 of R&D expenditures in their T2 tax return.19 R&D Intensity has been defined as R&D spending as a percentage of total expenses, i.e. Total R&D Expenditures/Total Expenses, which are both taken from T2.20 R&D intensity is defined as (Total R&D expenditures/Total Expenditures)21 That is, Total R&D Expenditures/Annual Average number of employees from T2 and PD7, respectively.

Table 8: R&D Performers in First Year of Angel Financing by R&D Intensity19

R&D Intensity20 (R&D spending as a % of total expenses)

Number of Firms

%

≤10 % 14 21%

10.01% -30% 31 46%

>30% 22 33%

Total 67 100%

Table 9: R&D Performers in First Year of Angel Financing by Average R&D Spending per Employee

R&D Spending per Employee21

Number of Firms

%

≤$40K 28 44%

$40.01K - $60K 18 29%

>$60K 17 27%

Total 63* 100%

* Employment data was not available for 4 R&D performers


Table 10: R&D Performers in First Year of Angel Financing by Total R&D Spending

R&D Expenditures * Number of Firms % R&D Spending ($ million) %

≤$100k 23 34% $1.10 6%

$100.01K - $500 33 49% $9.20 46%

$500.01K - $5M 11 16% $9.50 48%

Total 67 100% $19.80 100%

* As reported on their T2 Tax return.

In total, these 67 Angel-backed firms spent $19.8 million on R&D in the year they first received Angel financing, an average of $295,000 per R&D active firm. Sixteen percent of these R&D active firms accounted for almost half of the total R&D spending of that population (Table 10).

They were generally small in size

Angel-backed firms were very small, both in terms of revenue and number of employees in the year they first received Angel financing. They all had fewer than 100 employees, and 75% of them had 10 or fewer employees (Table 11).

Table 11: Distribution of Firms by Number of Employees in First Year of Angel Financing

Number of Employees Number of Firms % Total employment %

1-10 66 75% 235 31%

11 -100 22 25% 529 69%

Total 88* 100% 764 100%

* Employment data was not available for 22 firms


Average employment22 during the year of first Angel financing was 8.6 employees for all firms, 3.6 employees for firms with 10 or fewer employees, and 24.0 employees for firms with 11 or more employees. Firms with 11 or more employees employed 529 employees, which represents 69% of total employment.

Total revenue in the first year of Angel financing was $500,000 or less for 72% of the firms (Table 12). Average total revenue was $692,000 across all firms and $154,000 for firms with $500,000 or less in total revenue.

Average employment during the first year of

Angel financing was 8.6 employees.

Total revenue in the first year of Angel

financing was $500,000 or less for 72% of

the firms.

Table 12: Angel-Backed Firms by Total Revenue in the First Year of Angel Financing

Revenue Number of Firms % Total Revenue ($ million) %

≤$100K 30 31% 1.1 2%

$100.01K - $500K 40 41% 9.7 14%

$500.01K - $1M 10 10% 7.0 10%

$1.01M - $10M 18 18% 50.0 74%

>$10M 0 0% 0.0 0%

Total 98* 100% 67.8 100%

* Revenue data was not available for 12 firms

22 Annual average number of employees from monthly payroll remittances.


They also created high-paying jobs

An indicator of the quality of the jobs created by Angel-backed firms is the average wages they pay their employees. About 40% of Angel-backed firms paid their employees an average wage between $40,000 and $70,000 in the year they first received Angel financing, while 25% paid average wages that exceeded $70,000 (Table 13).

However, they were not profitable in the year they received Angel capital.

The majority of Angel-backed firms were unprofitable in the year they first received Angel financing (Table 14). As many as 83% of these firms ended the year with a negative net income. This suggests that their operations were mainly funded by the founders, Angel investors, other equity investors, and perhaps other sources of external capital.

23 Average wage has been defined as Annual wages and salaries/Annual Average number of employees, which are both taken from PD7.

*Average wages data was not available for 29 firms

Table 13: Angel-Backed Firms by Average Wage23 in First Year of Angel Financing

Average Wage Number of Firms %

≤$40K 29 36%

$40.01K – $70K 32 40%

>$70K 20 25%

Total 81* 100%

Table 14: Angel-Backed Firms by Net Income in First Year of Angel Financing

*Net Revenue data not available for 15 firms

Net Income Number of Firms %

Negative 91 83%

Positive or missing 19 17%

Total 110 100%


6.3 Performance of Angel-Backed Firms in 2012

Angel-backed firms stand out as highly R&D focused

In 2012, 60% of the Angel-backed firms were R&D active, while this was true for less than 8% of the firms in Manufacturing and Professional, Scientific and Technical Services comparison groups. Furthermore, the R&D active Angel-backed firms spent on average $323,000 on R&D activities, which is at least 40% more than the average R&D expenditure by R&D active firms among the three comparison groups (Figure 36).

R&D active Angel-backed firms spent on

average $323,000 on R&D activities…at least

40% more than the average.

Figure 36: Average R&D Spending in 2012, R&D Active Angel-Backed Firms and Firms in Comparison Groups

$323k

$141k

$231k

$159k

Angel-Backed Manufacturing Professional Services

R&D Performers


R&D active Angel-backed firms also spent more on R&D per employee than R&D active firms in each of the comparison groups. In 2012, 43% of the surviving Angel-backed firms spent at least $40,000 per employee, compared to only 4% among R&D active firms in Manufacturing, 22% among R&D active firms in the Professional, Scientific and Technical Services, and 13% among all R&D active firms (Figure 37).

Finally, R&D active Angel-backed firms had greater R&D intensity than R&D active firms in the three comparison groups. Forty five percent of the R&D active Angel-backed firms demonstrated R&D intensity of between 10 percent and 30 percent, while only 13%, 36% and 22% of R&D active firms in the Manufacturing, Professional Services and R&D performers firms in the comparison groups, respectively, achieved that level of R&D intensity. The percentage of firms spending more than 30% of their total expenses on R&D was also the highest among the Angel-backed firms (Figure 38).

The percentage of firms spending more than

30% of their total expenses on R&D was the

highest among the Angel-backed firms.


R&D Performers

26%

41%

64%

22%14%

36%23%

45%

83%

13%4%

29%

Figure 38: Distribution of Firms by R&D Intensity in 2012, Angel-Backed and Comparison Groups

10% 10% - 30% >30%

Figure 37: Percentage of Firms Spending $40,000 or More per Employee on R&D in 2012, R&D Active Angel-Backed Firms and Comparison Groups

43%

4%22%

13%


R&D Performers


And a majority had less than 10 employees and less than $1 million in revenue

In terms of size by number of employees, the distribution of Angel-backed firms was dominated by firms with 10 or less employees, which was the case with Manufacturing and Professional services comparison groups (Figure 39).

As illustrated in Figure 40, firms with revenues less than $1 million represented 84% of Angel-backed firms, 65% of firms in the Manufacturing comparison group and 93% of firms in the Professional service comparison group. The R&D active comparison group exhibited a more balanced distribution.

Figure 39: Distribution of Firms by Employment Size, Angel-Backed and Comparison Groups

≤10 11-100


R&D Performers

66%

34%

71%

29%

92%

8%

48% 52%

Figure 40: Distribution of Firms by Average Revenue Size, Angel-Backed and Comparison Groups

≤$1M >$1M


R&D Performers

65%

35%

84%

16%

93%

7%

42%

58%


But paid higher wages to their employees than other firms.

Angel-backed firms provided higher-paying jobs than firms in the three comparison groups. As shown in Figure 41, 80% of Angel-backed firms paid average wages of more than $40K in 2012, while the figures for firms in the Manufacturing, Professional Services, and R&D performers groups were 46%, 64% and 68% respectively.

Angel-backed firms provided higher-paying

jobs.

Figure 41: Distribution of Firms by Average Wage Category in 2012, Angel-Backed and Comparison Groups

≤$40k >$40k


R&D Performers

54%46%

20%

80%

36%

64%

32%

68%


And as expected, Angel-backed firms were less profitable.

Angel-backed firms were less likely to be profitable in 2012 than R&D active firms in the comparison groups. They posted a negative income in that year much more often than firms in the three comparison groups (Figure 42).

Overall, these findings suggest that Angel-backed firms tend to be R&D intensive, early-stage start-ups that are not yet profitable and rely on external funding to support their development activities. They also created quality jobs as reflected by the high average wages they paid.

Negative Net Income

Figure 42: Percentage of Firms with Negative Net Income in 2012, Angel-Backed and Comparison Groups

77%

38% 33% 38%

Angel-backed firms tend to be R&D intensive,

early-stage start-ups that are not yet profit-

able and rely on external funding to support

their development activities.


R&D Performers


In the survey follow-up interviews, Angel group managers identified a number of best practices they believe contributed to their success. The following seven best practices were mentioned both this year and last year:

Good record keeping: To monitor the success and/or failure of investments (to measure returns on investment (ROI) and improve the Angel groups’ track records).

Collaborating with other partners in the ecosystem: To save time and complement existing resources, some Angel groups have partners in the ecosystem that provide a variety of services. These ecosystem partners will often: screen presentations, weeding out companies that are not Angel ready, provide deal flow to the Angel group, or syndicate with the group’s investments.

Providing resources to companies: To ensure companies are investor-ready, many groups offer services like opportunities to practice pitches, and bringing in experts to help with due diligence.

Syndication: To diversify investment risk, promote increasing the number of Angel investors involved in a deal and the number of deals in a portfolio company. Many groups found that having relationships with other Angel groups enables syndication.

Disciplined processes: To improve deal flow and as a screening mechanism, members use disciplined processes including having formal screening and due-diligence processes. Regularly scheduled meetings foster member engagement and keep matters professional and timely.

Events and education seminars to attract and engage members: To engage the community and help build awareness of the industry. Many groups hold events that educate members and prospective members on the topics that are relevant to Angel investments.

Member events and communication: To keep members engaged and active, many groups host member-only special events to foster networking or send out regularly scheduled newsletters. Meeting in an informal setting often helps build trust and relationships between members.

There were two newly mentioned best practices in 2014:

Member engagement through technology: To facilitate member engagement, many groups use technology to allow participation from membership across the globe. Angel groups host webinars and stream company pitches online for members that cannot attend meetings and education events in person.

Member surveys: To understand the investment preferences of their Angel group members, groups often conduct surveys of their memberships. These surveys are an opportunity for the group manager to learn about their members’ needs.

7 | Angel Group Best Practices and Challenges


Angel group managers identified the following five challenges facing their groups in 2014. The first four challenges listed here were also mentioned during the follow-up interviews in 2013.

Lack of support funding: Many groups rely on membership fees, funding support from local government agencies and corporate sponsors to support operations. A number of groups indicated that they rely on the work of volunteer members, which often leaves the groups under-resourced. Group managers indicated that increased government funding is needed, expressing the challenge of sustainability.

Membership growth: Long investment time horizons restrict the Angels’ ability to reinvest in new companies. The lack of fund recirculation means groups must recruit new members in order to remain active. Much of the Angel group managers’ time is spent seeking new membership in an attempt to address investor fatigue.

Quality of supply: Finding a well-managed company with a high potential for growth that can get to an exit faster is an ongoing challenge for investors. Some groups are addressing this by setting up strategic partnerships with local organizations that support entrepreneurs.

Community awareness: Many groups reported challenges associated with constantly having to educate the public on what they do and why they are valuable to the community.

Membership engagement: Groups rely on members volunteering their time for pitch coaching, deal screening, and leading investment. Many members express interest in a company but do not take the initiative to take on a formal role to make the investment happen.


This report provides an overview of the reported activity level in the visible Canadian Angel capital market. The year 2014 showed a tentative recovery in the visible Canadian Angel capital market. The amount invested by Angel groups increased by 2% over 2013, while the number of deals rose by 17%. Deal sizes were larger, and there was an increase in deal flow to the Angel groups. The following findings also emerged from the report:

1. There was a big shift in the composition of investments in 2014. New Angel group investments substantially increased (+66%) over their 2013 levels, while follow-on investments sharply decreased (37%). In contrast, from 2012 to 2013, there was a marked decline in new investments and a marked increase in follow-on deals.

2. Angel investments were concentrated in two sectors: ICT, Life Sciences. ICT and Life Sciences each attracted about the same amount of investment. The average investment and deal size in ICT companies were relatively small whereas those in Life Sciences were relatively large.

3. With about $81.0 million in investments, investors associated with Angel groups located in Central Canada placed the bulk of the reported $90.5 million invested by Canadian Angel groups. The remaining $9.5 million is almost entirely invested by Angel groups located in Western Canada.

4. An analysis of the data from the Canadian Angel Group Surveys of 2010, 2011 and 2012 found that Angel-backed companies are small and often R&D active. They also tended to be R&D intensive, posted low profitability in the year they first received an Angel investment, and paid high average wages compared to companies in three comparison groups. This suggests that they tended to be high technology start-ups.

5. The reported exit volume in 2014 continued to be low with only 10 Angel groups reporting positive exits from 9 companies. There were eight acquired companies, one IPO, and three bankruptcies. There is a concern that many exits were not reported.

6. Of the reported investments, 75% were syndicated with parties outside the Angel group. Angel groups make use of several syndication options, with about half of the deals involving syndication with other Angel investors. Syndication with VCs, the Government, or other financiers, occurred in a smaller, yet still substantial, number of investments.

7. The Report on Angel Investing Activity in Canada continues to capture more investments every year. The 2014 survey captured a total of 237 investments by 30 Angel groups that amount to $90.5 million. By contrast, the 2013 survey captured 199 investments by 25 Angel groups that amounted to $88.7 million, and the 2012 survey captured 139 investments by 19 groups worth $40.5 million.

8 | Conclusion

Active members: Angel groups members that participated in at least one deal during the year.

Application success rate: The reported number of investments made by the Angel group divided by the reported number of funding applications received by the Angel group.

Co-investment: When two or more Angel investors from the same group participate in the investment.

Comparison Sample: In each year, all Angel groups that participated in the survey in the current as well as previous year.

Deal: A deal is an investment round in a single company.

Deal size: The total amount of financing received by a company from all sources in a financing round, including from co-investors and syndicate partners. Deal size was only available for those deals for which Angel groups provided the information.

Established Angel groups: Angel groups that have been established at least 6 years ago.

Exit: When Angel investors divest ownership from a company. For the purposes of this report, only positive exits are reported, including initial public offerings on a stock market and mergers and acquisitions.

Follow-on Investment: An investment made by an Angel group into a company that has received prior funding from the Angel group.

Funding rate: The reported number of deals divided by the reported number of presentations.

Investment Amount: For each deal, the amount invested by a specific Angel group into a single company by group members. This does not account for other sources of capital received in the deal

New Angel Groups: Angel groups that participated for the first time in the survey.

New Investment: An investment made in a company that has never received prior financing from the Angel group.

Pre-money Valuation (Valuation): The value of a company’s equity as imputed from the investment or the deal (not including the round amount which will be transferred to the company).

Presentation rate: The reported number of firms that presented to Angel groups divided by the reported number of firms that requested to be considered for funding from that group.

Syndication: When investors from outside of the Angel group are involved in a deal.

Young Angel Groups: Angel groups that have been established within the past 5 years.

Annex: Data Dictionary and Glossary


Angel One Investor Network is a member-based, not-for-profit organization of accredited investors who live, work or have strong interests in Mississauga, Oakville, Burlington, Hamilton and other communities in Southern Ontario. In 2013, Angel One formalized its practices into a more disciplined approach to company evaluation, due diligence and process. Since incorporating in September 2011 to December 31, 2014, Angel One members have invested over $15.8 million into 54 deals across a broad range of sectors: 57% in software as a service, 24% in information, communication and technology 10% in health care, 5% in clean tech and 5% in industrial. For more information please visit: www.angelonenetwork.ca

In 2008, Anges Québec launched its operations. The organization has 165 members and operates in Montreal, Quebec and Estrie. Since launching, Anges Quebec has made 65 investments in different areas of expertise such as: information technology, web, life sciences and manufacturing. The average amount per investments is approximately $500K. In 2012, Anges Québec help established a co-investment fund of $85M. 30 investments have been made through this Anges Quebec Capital Fund with Anges Québec members with an average first round investment of approximately $400K. For more information please visit: angesquebec.com/en/

The Golden Triangle Angel Network (GTAN) is a not-for-profit organization established under the Ontario Ministry of Research and Innovation’s Angel Network Program (ANP). From a standing start in September of 2009, GTAN has screened over 300 early-stage companies, and showcased 200 to our membership which now exceeds 100 investors. The outcome of this activity is 49 companies funded, with angel investors committing over $20 million in capital, which in combination with other sources of financing has resulted in over $45 million of capital infusion into our local, early-stage companies, driving economic growth and prosperity, and ultimately strengthening the social fabric of the Golden Triangle Region. For more information please visit: goldentriangleangelnet.ca

The Capital Angel Network is a non-profit, membership-based organization of accredited investors seeking investment and mentorship opportunities in dynamic, early-stage companies. CAN provides a supportive network in the National Capital angel community, developing best practices for due diligence, investing and on-going mentoring. Members engage with rising entrepreneurs – through funding, expertise and knowledge – to facilitate valuable learning and growth. Since 2009, CAN has enabled strong ties between investors and entrepreneurs, strengthening community networks and fostering seed and early-stage investments. Investors and entrepreneurs in the Ottawa-Gatineau area are encouraged to get in touch at [email protected].

Top Canadian Angel Groups


iGan Partners is a team of entrepreneurs that invests in dynamic management teams, empowering them to build the next big idea. We have been through the process of building large successful businesses and understand the challenges facing growing businesses, having faced them ourselves. We look for opportunities where we can add significant value and pride ourselves in helping entrepreneurs achieve success. We are “Entrepreneurs Empowering Entrepreneurs” and roll up our sleeves to help get the job done! For more information please visit: www.iganpartners.com

Mistral invests primarily in seed and early stage technology companies who are based in Canada but have global ambitions. We focus on Internet innovators; meaning those companies that harness the power of Mobile, Cloud and IoT technology and apply it in novel ways to existing and new industries. We invest early because we believe in a hands-on model where we can add significant value at the formation stage of growth. We leverage our partner base to provide access to executive talent, customers and follow-on-capital; including with some of the largest and most successful venture capital firms in North America. For more information please visit: mistralvp.com

We invest in unique private Canadian Healthcare companies unavailable to the investing public that offer the potential for outsized returns, targeting significant (50-200%) capital appreciation over a 5 year time horizon. The healthcare market is big and growing and an aging population provides a favourable demographic backdrop. The Canadian Healthcare sector has suffered from underinvestment, representing an attractive opportunity. We look for companies with strong management teams and scalable, disruptive platform technologies that provide non replicable products or services. Omega Star is currently transitioning into a Healthcare fund.

Northern Ontario Angels covers North of Barrie to the Manitoba border. This area is approximately 802,378 square miles and covers 5 larger centers as well as a number of smaller communities including 120 First Nation communities. We have recently implemented a Chapter structure that provides for 5 Chapters in our area, one in each of the 5 larger centers in the North; North Bay, Sault Ste. Marie, Sudbury, Timmins and Thunder Bay. Our goal is to have a part-time person on the ground in each of these communities to work with our Investor members and companies seeking investment. Our strongest success is the Investors that support and believe in our communities by investing or mentoring new and growing businesses. For more information please visit: www.noeg.info


Omega Star

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The Saskatchewan Capital Network is a member-based, non-profit organization of Saskatchewan angel investors. We currently have over 40 investor members interested in seeing good investment opportunities in startup and growth-focused entrepreneurial companies, particularly those based in Saskatchewan. Through presentation and networking events, Saskatchewan Capital Network facilitates the introduction of investment-ready entrepreneurial companies to potential investors. Saskatchewan Capital Network investor members are interested in technology-based companies with a proprietary product or service, as well as companies in other industries with high growth potential. Our objective is to encourage Saskatchewan entrepreneurs to build successful, sustainable businesses. For more information please visit: saskcapitalnetwork.com

For the past eleven years VA Angels, formerly VentureAlberta Forum, has supported entrepreneurship and investing around the globe. Investments have been made across Canada, in the US, Africa, and the UK. In operation since June 2003, VA Angels is one of the largest gatherings of angel investors in Western Canada with over 125 paid members with chapters in Calgary, Edmonton (known as TEC VA in Edmonton reflecting the partnership with TEC Edmonton), Kelowna, Winnipeg and an ex pat chapter in Phoenix, AZ. Since its inception, the members of VA Angels have financed 102 companies for over $38 million. Follow us on twitter @VA_Angels For more information please visit: vaangels.com

Top Canadian Angel Groups


Since 1996 XDL Capital Group, led by Dennis Bennie, has supported entrepreneurs building technology related companies in new and growing business sectors as an early stage investor. We invest our own monies, uniting our interests with each entrepreneur. We are focused on our investments, sharing our experience, networks and knowledge to help them grow and prosper. We’ve participated as founders, CEO, Chair of the board, directors and advisors in several companies including Delrina (acquired by Symantec), MGI (acquired by Roxio), Entercept (acquired by McAfee), Delano Technologies (from startup to NASDAQ listing), Commtouch (NASDAQ:CTCH) and currently serve on the board or advisor to Newtopia Inc., Appinions Inc. (acquired by ScribbleLive), Nymi Inc., Mill St. Brewery, Newtopia Inc., Quandl Inc., Vouchr and Linkett. visit: xdl.com

Thomas Hellmann, Committee Chair, University of British Columbia

Thomas Hellmann is a professor at the Saïd Business School, University of Oxford and the Sauder School of Business, University of British Columbia. He holds a BA from the London School of Economics and a PhD from Stanford University. His research focuses on entrepreneurial finance, entrepreneurship, innovation, and public policy.

Paul Schure, Author, University of Victoria

Paul Schure (PhD European University Institute, Italy) is an Associate Professor of Economics at the University of Victoria. Paul’s research on Entrepreneurial Finance, Financial Intermediation, and European Integration has appeared in various international Economics and Finance journals.

Yuri Navarro, Lead Advisor, National Angel Capital Organization

Yuri Navarro is a strategy consultant with more than seven years of experience working with government and businesses in the Ontario technology sector. Yuri has presided over the renewal and growth of the National Angel Capital Organization since 2012 by focusing on the organization’s value to stakeholders and supporting the growth and professionalization of Canada’s Angel asset-class.

Younes Errounda, Advisor, Industry Canada

Younes has been with Industry Canada for nine years, working on research on innovative small business, access to smart capital and developing policy to promote Angel investment, and venture capital. Younes as has a Masters of Art’s in Economics from York University and a Bachelor’s degree in Economics from Morocco.

Melissa Dodaro, Project Coordinator, National Angel Capital Organization

Melissa hold a MBA from Ryerson University’s Ted Rogers School of Management. As the Research Manager at NACO, Melissa is responsible for managing all research, education, and policy initiatives, including the Angel Activity Report.

2014 Report Steering Committee


Shane Dolan, Advisor, Industry Canada

Shane has been with Industry Canada for eight years, developing policy to promote entrepreneurship, angel investment, and venture capital. Shane has a Masters of Business Administration and a Bachelor of Commerce.

Jim Valerio, Advisor, Industry Canada

Jim has been developing economic policy at Industry Canada for 12 years in areas that include innovation, commercialization, entrepreneurship, and access to financing for innovation-based businesses. This augments 20 years of international private sector development and senior management experience delivering complex electronic hardware and software products. Jim is an electrical engineer with a Masters in Business Administration.

Jeri Ross, Advisor, KPMG Enterprise

Jeri Ross is a seasoned research professional with proven abilities in developing and implementing research projects and methodologies for both internal and external uses. She has over 15 years of research experience with KPMG and currently serves as the Director of the National Research team for KPMG in Canada.

Karen Grant, Angel Advisor, Angel One Investor Network

Karen is the founder and executive director of Angel One Investor Network. She was instrumental in planning and launching Toronto Angel Group in 2001 and Northern Ontario Angels in 2005. She is currently the Chair of Northern Ontario Angels. She has founded companies, launched investment funds and has worked in the commercialization field since the early 1990s.

Erika Kurczyn, Advisor, BDC Capital

Erika Kurczyn is a corporate affairs professional with over 10 years experience in venture capital, commercial banking, mining, and international trade. Erika holds a BA (Honours) in International Studies from York University, and has completed executive training at the Venture Capital Institute, the Rotman School of Management, and McGill University.


This report is produced by the National Angel Capital Organization.

The National Angel Capital Organization accelerates a thriving, early-stage investing ecosystem in Canada by connecting individuals, groups, and other partners that support Angel-stage investing. NACO provides intelligence, tools and resources for its members; facilitates key connections across networks, borders and industries; and helps to inform policy affecting the Angel asset-class.

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2014 Report on Angel Investing Activity in Canada

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