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Canadian startups are benefiting from a buoyant market for early-stage investors, but those that get bigger and more successful encounter a serious shortage when seeking larger growth capital venture investments, according to two reports from Canadian early-stage financing organizations.

A survey this week by the National Angel Capital Organization – which represents "angels," or wealthy individuals who invest directly in startups – finds the market for angel investments was "significantly more buoyant in 2015 than in 2014."

According to NACO, 24 local angel network organizations across Canada reported total investments made by their members increased by 18 per cent year-over-year while the amount invested increased by 27 per cent. A total of 32 organizations that reported data for 2015 said their members made a combined 283 investments in 2015 totalling $134-million. NACO reported investment activity by angel groups "has increased substantially, albeit erratically, since 2012."

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More significantly, said NACO chief executive Yuri Navarro, is how the angel investing landscape has evolved in Canada. Less than a decade ago, a typical angel investor was a "lone wolf" who might write a cheque of up to $50,000 to a startup, and never invest in the firm again, he said. Average angel investment rounds totalled around $150,000, he said.

Now, "instead of putting in $50,000 and hoping for the best," angels are keeping tabs on the companies they fund and bringing in other angels to invest alongside them, Mr. Navarro said. As a result, the average angel investment round is closer to $1.2-million, and angels are likelier to participate in follow-on fundraising rounds by their portfolio companies. Follow-on investing "is something angels never used to do and now they're doing it frequently," Mr. Navarro said. "This tells us the angel market is starting to mature."

That is consistent with another report this month by Vancouver venture capital firm Yaletown Partners. But that isn't necessarily a cause for celebration. Yaletown found Canada "disproportionately invests in seed and early-stage companies," which have seen their share of venture investments increase to 58 per cent last year from 38 per cent in 2013. During that time, total investment in later-stage deals declined by more than 40 per cent – in sharp contrast to the U.S., where later stage investment doubled. (Another report earlier this year painted a more upbeat picture, as Thomson Reuters noted the number of companies that raised $20-million or more in venture financings last year was more than double the level in 2014, fuelling one of the strongest years for VC financings on record in Canada.)

Yaletown found there is too little capital spread too thinly across Canadian tech companies compared to the U.S., and that the lower amounts of capital available for Canadian companies hamper their competitive position and dampen their value when they either sell out or go public. Yaletown, one of several venture funds pressing the government to pump more money into the startup ecosystem through a sequel to the Conservative administration's Venture Capital Action Plan, argued Canada faces a $1-billion "emerging growth capital gap" and that the gap is growing by $250-million a year.

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