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With asset managers struggling to consistently deliver sizable returns, many have decided to start marketing investments that allow retail investors to dabble in alternative assets.tsarenko/Getty Images/iStockphoto

Canadian angel investors deployed less capital in 2020 than either of the two years before, a new report has found, but experts say funding is back on the climb.

Angel investors provided a total of $102.9-million in funds in 2020, which was 37 per cent lower than in 2019 ($163.9-million) and 28 per cent lower than in 2018 ($142.8-million), according to the National Angel Capital Organization, or NACO. While the number of deals increased year-over-year – 416 as opposed to 299 in 2019 – the total was still down from 2018, when there were 583 investments.

Angel investors are typically wealthy individuals who put their own funds into early-stage startups. Angel investments have contributed to the growth of some of Canada’s largest entrepreneurial successes, including Slack, Wealthsimple, Top Hat, Clearco and Verafin. According to NACO, Canadian angels have invested more than $1.12-billion since 2010.

The decline in financing last year was in opposition to the venture capital market, which had an active 2020. Canadian venture capital investments totalled $4.4-billion in 2020, the second-highest level on record, according to the Canadian Venture Capital and Private Equity Association. The biotechnology industry was particularly successful: Among others, B.C. biotech firms AbCellera Biologics and Chinook Therapeutics raised $144-million and $140-million, respectively.

Claudio Rojas, chief executive officer of NACO, said angels were deterred in 2020 by the uncertainty brought by the pandemic. Many chose to pull their money out of the market to put into savings, he said, opting to hold back in what was seen as a high-risk market.

“Because of the decline in the stock market and their portfolios, which declined significantly in March of 2020, there was likely less capital available to be put at risk into the early stage,” Mr. Rojas said. “Angels were still writing cheques supporting entrepreneurs. They just weren’t doing it at the same dollar amount as they did in a pre-COVID-19.”

New logistics also posed a challenge for angel investors, said Mary Long-Irwin, executive director of Northern Ontario Angels, a Thunder Bay-based non-profit based that helps entrepreneurs find capital.

“Angel investing is often a very social activity and switching to virtual investment meetings was challenging for some investors,” Ms. Long-Irwin said.

In addition to uncertainty, Mr. Rojas attributed the decline to the lack of government assistance to minimize risk for angel funders, compared with what was available for venture capital organizations. Last year, Business Development Bank of Canada offered the Venture Capital Catalyst Initiative and the BDC Capital Bridge Financing Program. He said a similar program would greatly benefit angel investors and companies looking for early-stage capital.

“Having a targeted policy mechanism, like the BDC matching funds initiative, or national equity tax credit, would be a signalling mechanism to the investor community that there’s opportunity in the early stages,” Mr. Rojas said. “There’s a lot of capital that’s on the sidelines that could be deployed.”

But already, there are indications that interest is returning.

Activity since January has already been up, according to Dennis Ensing, CEO of Equation Angels, Canada’s second-largest angel network. While he saw a decrease in the number of members in his investor groups across Ontario, sentiment is taking a turn, he said.

“As a result of the stabilization of the economy, we’re definitely seeing a return to much more normal investment activity,” Mr. Ensing said.

Now, Ms. Long-Irwin said, angels have become more comfortable meeting with entrepreneurs virtually.

“In Northern Ontario Angels’s case, it’s not uncommon for investors to have to drive quite a distance to get to investment meetings, so we had already done several virtual meetings. Going virtual for all of our meetings actually allowed investors to connect with more entrepreneurs.”

Vihangi Mehta, managing director of Maple Leaf Angels, a community of Toronto-based angel investors, said working virtually has expanded their ability to find new opportunities across the country.

“Our angel investment activity has risen last year in comparison to previous years as virtual meetings have given our members access to national deal flow and better ability to review material at their convenience,” he said in an e-mail.

This year, Heirlume, an online trademark registration startup based in Toronto, raised a $1.7-million seed round from angel investors, and Canadian password management platform 1Password raised $125-million from angel investors. In July, Properly, the Canadian tech-enabled real estate brokerage, announced $44-million in Series B financing, partly contributed by angel investors, to fuel a national expansion.

“There will be work to do to bring people back over the next two years, but we believe strongly that in five years, we will have returned back to where we were at the beginning of 2020,” Mr. Ensing said.

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