Canada's dynamic technology sector is like a constellation of opportunity, with diverse and exciting startups dotting the country. And like the stars above, these bright lights of Canada's new economy are being fuelled by something powerful and unseen: angel investment.
From Vancouver to St. John's, angels are filling an important gap between friends-and-family financing, venture capital and other sources of funding. They're investing in emerging innovative companies, fostering the next generation of entrepreneurs and supporting technologies across a wide range of industries and sectors.
In the past two years, members of the National Angel Capital Organization (NACO) – which represents more than 2,100 angel investors, groups and networks across Canada – have invested nearly $180-million in startups. Businesses range from medical and environmental technology, to apps and the 'Internet of things,' for both consumers and enterprise.
The number of active angels continues to expand, and so does the success of the fast-growing tech sector in Canada. As we reach the end of the first quarter, trends are emerging around the ways angels are investing in 2015. Here are some of the developments:
1. Investing in Made in Canada opportunities. You might call this the BlackBerry effect, although there are many other impressive examples, such as Cognos, Mitel and ATI Technologies. These companies launched as startups or spun-out from other ventures, and with some initial local investment and a lot of smarts, grew into global leaders that have led the way for other Canadian tech firms to grow and prosper. Now angels are increasingly investing locally and seeing the far-reaching economic benefits in their communities. Think Beyond the Rack in Montreal, Shopify in Ottawa and Hootsuite in Vancouver as just a few recent success-stories carrying that momentum forward.
2. Growing diversity and skills. Women are beginning to take a more active role in learning about angel investing and putting their capital to work in technology enterprises across multiple sectors. More structured groups are also combining their skills and investments, in order to help companies get to market sooner or open up new investment sources. Foreign investors from Europe, China, and the Middle East are also increasingly looking at investing alongside these angels, providing companies with access to new markets.
3. Adoption of best practices. Angel investors and groups are progressively collaborating on best practices. These programs allow investors direct access to effective industry practice and standards developed for, and by, Angel investors across Canada and abroad.
4. Canada-wide cross-border syndicates This year, there's a growing array of investment opportunities being syndicated between angel investors across Canada and in the U.S. This is the future. Angels are building better relationships with other investor networks and early-stage venture funds to provide larger injections of capital at later stages of growth and ensure that investee companies avoid early pitfalls. These relationships are becoming paramount, as startup investing continues to develop as a "contact sport."
5. Focus on strategic exits. Angel investing is evolving and maturing, with angels focusing more on their path to an exit, thinking strategically about the capital required and which investors can help propel company growth. They are also using comparisons and metrics to anticipate business needs and obstacles early on, benefiting investors and the company.
As angels become more connected and involved with their investments, they are honing their skills to add value, and becoming a greater force in the startup ecosystem. They are helping to close Canada's innovation and productivity gap by ensuring that our best companies and brightest ideas continue to thrive in Canada, instead of selling early or relocating to other markets. With some luck, they'll be rewarded with great exits.
Michelle Scarborough is the chair of the National Angel Capital Organization (NACO) and managing partner of Fronterra Ventures, an energy technology fund targeted at bringing emerging technology to the oil and gas industry. She is also a founder of a women's angel network in Canada, designed to foster more women investing in technology and innovation.