What is Angel Investing?

What is Angel Investing?

The term “angel” investing originated from Broadway where it was used to describe wealth individuals that provided financial support to theatrical productions. In 1978, William Wetzel a professor and founder of Center for Venture Research at the University of New Hampshire championed the first study on how entrepreneurs raised seed capital in the US during which he started to use the term “angel” to describe the initial investors. Now the term patron is used to describe those that support the arts.

Today angel investors are affluent individuals looking to diversify their portfolio and use their own funds to provide capital to startups typically in exchange for equity or convertible debt. Private investment gives support to startup in the early stage of the company with the goal of high returns, however, the investment does come with a high risk of failing. Angel investing continues to grow each year with an increasing number of angel investors accessing deals, sharing knowledge and capital through online platforms, angel groups and angel networks enabling investors to make more informed decisions to maximize overall returns.

What is the Angel Investing Landscape in Canada?

Canada’s Angel landscape is growing and maturing year over year and is playing an increasingly more significant role in financing the early-growth stages of startups. In addition, Angels have recognized the benefits of investing together which has led to growth of Angel groups where the most-active groups have 100+ members.

Angel Group Membership and Number of Investments

001

Did you know?

The estimated number of angels is between 20,000 and 50,000. Only angels in formal groups disclose investment data, so there are many “hidden” angels in Canada.

Angel Investing Activity in Canada

The 2018 Report on Angel Investing Activity in Canada produced by the National Angel Capital Organization (NACO) states that there has been 2,224 investments in 1,472 companies totaling more than $853.3 million since 2009.

Did you know?

In 2018, VCs made just 210 Investments of $1 million or less for a total investment of $80M according to the Canadian Venture Capital Association (CVCA) compared to $142.8 million of investment by Angels.

For the 2018 report, NACO collected information from 32 active Angel groups with total membership of 6,918 who reported 583 investments for $142.8 million of investment. This is a 15% increase in the number of investments compared with 2017 but a 12% decline in the amount invested as a result of a decrease in the average deal size per company. We can most likely attribute this to the fact that investors are doing more deals with lower initial investment allowing funds for follow-on investment.

Angel Investing Activity in Canada

002

Angel Investing Activity in Canada

003

In 2018 only 6.4% of the companies who applied to present at an angel group received funding. Angels see a countless amount of deals in any given year thus another benefit of angel group membership is seeing only deals deemed suitable for investment. Companies seeking capital are screened multiple times prior to having the opportunity to pitch in front of angel group members, thus ensuring members see only the best of the best deals available.

004

Often companies are rejected by the group`s deal screening committee as they are deemed un-investable at the time or they do not fit the groups` industries of interest. However, the deal screening process can provide valuable feedback that can help companies become investor ready in the future.

Return on Investment

Angel investors are interested in a variety of industries however, the ICT sector dominates at 45% of investments, followed by the Life Sciences at 20% and clean technologies at 8%.

005

Did you know?

Angel Group managers rated the current climate in Canada for Angel investing a median of 7 on a scale of 1 (very poor) to 10 (excellent). Groups based in Western Canada and Central Canada remain consistent with a median score of 7. However, Eastern Canada groups rated the investment climate much lower at a 5 which reflected increase from a 4 in 2017.

How does Angel Investing Compare to Other Types of Invesmtents?

Return on investment is by far the highest for Angel Investing and Venture Funds, however these investments also come with greater risk as they are done at an early stage of a companies’ lifecycle.

Typical Returns

  • Real Estate
  • Bonds
  • Public Markets
  • Angel Investing
  • Venture Funds
006

How Does Angel Investing Help?

Angels provide a bridge in funding filling the gap between friends and family and larger institutional investors and lenders.

007

Who Can Be An Angel Investor?

Simply stated you can be come an angel investor if you are an accredited individual.

An Accredited Individual Has:

  • An annual income exceeding $200,000 or $300,000 joint income for the last two years with expectations of earning the same or higher income in the current year OR
  • A net worth exceeding $1 million either individually or jointly with their spouse OR
  • A private business or organization with assets exceeding $5 million.

As of 2016, many provinces in Canada now allow non-accredited investors to invest in private markets - under specified limits such as:

  • Any investor can invest up to $10,000 within any 12-month period without restriction into private market investments.
  • Eligible investors* can invest up to $30,000 annually without suitability advice from a licensed investment professional or an exempt market professional.
  • Eligible investors* can invest up to $100,000 annually with suitability advice from an exempt market professional.

*Where an eligible investor must have had a minimum of $75,000 of income personally in the past two years; income of $125,000 when combined with a spouse; or $400,000 of total net assets either alone or with a spouse.

Source- Data and Diagrams: 2018 Report on Angel Investing Activity in Canada produced by NACO

Learn about Angel Investing with Valhalla Angels

Are you interested in learning more about Angel Investing with the Valhalla Angels group? Inquire about our memberships for more information!

Inquire about becoming a Valhalla Angels member