When the dot-com boom went bust in 2000, it killed many startups and wiped out many retail investors who had poured money into high-flying Internet companies.
Other victims of the dot-com bust were angel investors, who pretty much vanished from the investment landscape, particularly in Canada.
Many angels were battered not only by the market's sharp decline, but by the structure of many deals that saw them squeezed by venture capital firms during subsequent financing rounds.
For many years, angel investors stayed on the sidelines, licking their wounds. In fact, it was nearly impossible to find an angel investor in Canada, besides the occasional wealthy individual who was prepared to dabble in start-up investments under $1-million.
In the past year, however, angel investors have staged a comeback. In 2009, it was estimated that private investors pumped $1.9 billion into Canadian companies, according to Profit Magazine.
The return of angel investors is good news for entrepreneurs who need strategic capital to develop or expand their businesses, but who don't have the sales to attract venture capitalists.
In many cases, companies wanting to score angel financing are seeking $100,000 to $500,000. They also want investors who can also offer experience, insight and connections to potential partners, customers and other investors.
One of the primary reasons why angel investors have staged a rebound, particularly in the high-tech marketplace, is that many companies don't need as much capital to get up and running. In the high-tech world, the emergence of open source software, agile development tools, as well as lower-cost hardware, software and bandwidth costs, has dramatically reduced the amount of money needed to develop and launch a product or service.
The emergence of angel investors is forcing venture capital firms to change their stripes. With many companies seeking less money, venture capitalists will need to adapt if they want to compete against angels to participate in the most attractive deals.
This new investment environment is hopeful for entrepreneurs who struggled for many years to get any kind of start-up capital. In an ideal world, Canada will thrive with an investment ecosystem that features angel and venture capital investors.
Special to The Globe and Mail
Mark Evans is a principal with ME Consulting, a digital marketing and social media strategic agency that helps companies create and tell their stories to customers, bloggers/media, business partners, employees and investors. Mr. Evans has worked with three start-ups - Blanketware, b5Media and PlanetEye - so he understands how they operate and what they need to do to be successful. He was a technology reporter for more than a decade with The Globe and Mail, Bloomberg News and the Financial Post. He is also one of the co-organizers of the mesh and meshmarketing conferences.