Where’s the Money? Angel Investment in CanadaPosted by sabrina
If you’re seeking financing for a small business in Canada, you may be wondering if angel investment is right for you. Initially, a company’s funding can come from government and universities or friends and family (‘love money’), with a range of $2,000 to $500,000 invested during the research and development, prototype, and seed stages. Most people are familiar with venture capital, but these companies generally only comes into play during the growth phase, and so there is a commercialization funding gap present during the seed and start-up phases. According to the National Angel Capital Organization (NACO), it is during these stages that Angel investors choose to invest in a start-up. Individual angels in Canada generally invest between $10,000 and $250,000 and angel groups and syndicates invest up to $1 million and $11 million respectively.
Figure source: NACO
In 2011, Angel investor groups and syndicates in Canada invested $82.4 million in 134 investments, at an average of $614,000 per investment. This average has increased over $170,000 since 2010. However, groups and syndicates are a minority of the angel community, which has an estimated total activity of $916 million per year in approximately 1,500 companies. Most individual angels choose to remain anonymous, and so less information is available about their investment behaviour. Many individual investors are, however, choosing to form groups and associations in order to respond to market demand for higher investments.
According to the 2011 NACO report, Canada’s angel groups are relatively new, with 63% having been established within the last four years. In Western Canada, 85% of angel groups invest in companies that have headquarters in the same city. Although angel groups in other regions are more willing to invest outside of their cities, very few are investing outside their own province.
So, what are your odds of success? It turns out that angels are funding a larger proportion of the plans they receive, with 6.5% of received plans funded in 2011 compared to 4.5% funded in 2010. Of those received, 13.9% are selected for a detailed review, and 43.9% of those reviewed are chosen for investment. Angels are mostly interested in communications technology (51% of funding), followed by clean tech (21%), and life sciences (17%). You can expect to give up about 17% equity if you’re seeking angel investment, as this is the average amount angel groups received in return for their investments.
Have you ever had an experience with angel funding? We’d like to know your story!