With venture capital waning as a source of start-up funds for small business, a new type of financier has stepped into the gap – the “super angel.”
These investors have deep pockets and a willingness to provide material support and professional knowledge to start-ups or new companies with good business ideas. They operate on a smaller scale than traditional venture capitalists, but on a larger scale than the more traditional “angels,” who usually invest in a handful of companies.
Super angels typically invest several million dollars, spread over 20 or more companies, providing each with $50,000 to $500,000. Often they invest in online startups, which typically require less capital than more traditional business ideas. And while a typical angel investor works full-time on something else, super angels tend to dedicate 100 per cent of their time to their investments.
These new angels are becoming more important to business investment as other funding sources dry up, said Mike Volker, an angel investor and director of Simon Fraser University’s Industry Liaison Office in Burnaby, B.C.
“There is hardly any venture capital around and it’s a dying industry. Institutional investors and high-net-worth individuals are not investing in venture capital [because]the returns are dismal,” Mr. Volker said. But because the super-investor strategy ensures more diversified risks and returns, “I see this approach getting bigger and more organized,” he said.
Boris Wertz, who uses capital and experience gained from previous businesses to invest in the next Big Idea, is one such super angel.
As the Vancouver-based chief operating officer of AbeBooks.com, an online marketplace for used, rare and out-of-print books, which was sold to Amazon in 2008, Dr. Wertz decided his future career should be tied to fostering entrepreneurship in others, particularly those just starting out.
“My co-running [AbeBooks.com]… that had about $35-million in revenues and 140 people worldwide, was a very good experience for me. I had done angel investing on a small scale but about three years ago, I decided I wanted to do it full-time and invest more money.”
Dr. Wertz has picked up 20 investments in three years, all early stage, consumer Internet companies in the Pacific Northwest. He has invested between $50,000 and $250,000 in each, for a total of $2-million to $3-million, garnering a personal stake of three to 15 per cent in each.
Bryan Watson, executive director of The National Angel Capital Organization, an independent non-profit association that supports angel investor groups across Canada and recommends best practices, said it is difficult to know exactly how many Canadian angel investors could be considered super angels.
The trend is better established in the U.S. particularly in Silicon Valley, where super angels first emerged, financing online ventures such as Twitter and Facebook.
”I can think of 10 to 15 who are out there across the country as individuals and are fairly well known, but in Canada [the phenomenon]is at an early stage,” he said.
Some super angels use their personal brand and high public profile to attract potential investments, Mr. Watson said, while others prefer to fly under the radar to avoid being bombarded by would-be entrepreneurs. The latter often join angel investment groups so they can be relatively anonymous and still hear about likely investments.
The National Angel Capital Organization, for instance, receives “a lot of pitches of varying quality,” Mr. Watson said, the best of which are sent on to such groups around the country.
Dr. Wertz said there are plenty of opportunities, but finding the right fit for his experience and ambitions is the most important thing.
“You need to be selective about it. Stick to an industry you really understand, and pick companies close to home – coaching over the phone is a tough one. You want to see them in person as often as possible.”
What excites him about the online industry is the speed with which Internet companies can develop, taking months instead of years to get up and running, obtain feedback, tweak product lines, and learn whether or not the idea is working.
“I am trying to be very active with these companies, help them grow. I sit on the board, meet the entrepreneurs weekly and help them wherever they need help – on the market side, the product side, raising another round of financing, hiring people,” he said.
Mr. Volker said he’s frustrated by the fact that the media and public tend to focus on traditional venture capital, when that is “just a fraction of what is being invested.” Noting a recent white paper on the green tech sector cited a lack of venture capital, he said, “that’s a really stupid conclusion because there is so much capital [available from super angels and others]”
Special to The Globe and Mail