2022 Highlights from Report on Angel Investing in Canada

Annual Report Highlights

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape Highlights from 2022 Report on Angel Investing in Canada

2

NACO’s forthcoming 2022 Report on Angel Investing in Canada is authored by world-renowned scholar Colin Mason, Professor of Entrepreneurship at the University of Glasgow, Adam Smith Business School. We are grateful for his long standing contributions to Canada’s entrepreneurial ecosystem, including authoring nine annual editions of this report.

We wish to express our appreciation to the individuals and organizations that contributed to this data collection initiative, including the 2022 Report Review Committee for their ongoing advice and feedback as we prepare for publication of the forthcoming report.

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

2022 REPORT HIGHLIGHTS Investment Activity Overview

3

MARY LONG-IRWIN Board Chair National Angel Capital Organization

CLAUDIO ROJAS

CEO National Angel Capital Organization

“2021 was a phenomenal year for investment in Canadian startups. Our priority at NACO is to sustain this momentum in the face of mounting pressures and volatility in the broader economy. We see tremendous opportunity to develop new mechanisms to drive investment at the critical early stages of company growth, creating a strong pipeline of VC-ready, high-growth companies.”

“In 2021, we saw a wide-ranging shift from traditional modes of angel investing, with SPVs and early-stage funds contributing to a vibrant ecosystem. We also saw a conscious approach to breaking down systemic barriers for women and underrepresented entrepreneurs. It’s a year that reflects in many ways how our community is leading change in the broader economy.”

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

2022 REPORT HIGHLIGHTS Investment Activity Overview

4

NACO reports a rebound in angel investing with $262.1 million invested and a 50% increase in women’s participation.

vided by angel investors, groups, fam- ily offices, SPVs and funds across the country. Publicly-available data sourc- es were also consulted, which assisted in forming a holistic overview of angel activity within Canada’s broader in- novation economy. These important insights inform program and policy de- velopment, helping to drive impact in communities across the country.

angel activity attributable to women investors: 27%. This is a 50% increase over the four-year average of 18% par- ticipation. See Figure 6 - Highest Re- corded Participation from Women An- gel Investors To-date. NACO’s annual report tracks import- ant trends in investor behavior while highlighting the changing landscape of angel investing in Canada. These findings were informed by data pro-

After 12 years of tracking investment data across the Canadian innovation ecosystem, the National Angel Capital Organization (NACO) is releasing key highlights from its forthcoming Report on Angel Investing in Canada. This year’s report shows record levels of early-stage investment made by Cana- dian angel investors, bringing the total amount invested over 12 years to $1.38 billion. This report also highlights a significant increase in the amount of

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

2022 REPORT HIGHLIGHTS Investment Activity Overview

2010-2021 Cumulative Investment

TOTAL $1,382,052,316

2021: $262.1 million.

Québec 2021: $85,324,801

Western Canada BC, AB, SK, MB Atlantic Canada NS, PEI, NB, NL Central Canada ON, QC Northern Canada YT, NT, NU

Atlantic Canada 2021: $29,423,400

$293,465,432

$211,628,615

$38,385,658

$182,940,000

Western Canada 2021: $43,100,715

$655,632,610

Northern Ontario 2021: $26,560,000

Southern Ontario 2021: $77,716,939

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

2022 REPORT HIGHLIGHTS Investment Activity Overview

6

Angel Activity Rebounds in 2021 FIGURE 1

In 2021, we saw an overall recovery and uptake in new invest- ments. Organizations reported an increase in investor appe- tite as 2021 progressed, which was reflected by the increase in investment activity. The 2021 data paints a more positive picture than 2020, showing a sharp increase in investment activity from Q1 to Q2, a slight drop in Q3 and a slight in- crease in deal activity in Q4. Towards the end of 2021, organi- zations reported a halt to the resumption of some in-person activities due to a new wave of the COVID-19 pandemic. This may have influenced the slight decrease in activity in the lat- ter part of the year.

Angel organizations include angel groups, family offices, SPVs and funds that invest in early-stage companies.

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

2022 REPORT HIGHLIGHTS Investment Activity Overview

7

New and Increased Activity in Western Canada, Atlantic Canada, and Yukon FIGURE 2

Central Canada 67%

Western Canada 27%

Angel groups facilitated 635 investments in 2021, compared with 416 in 2020: a 53% in- crease in investments made year-over-year, and a 38% increase over the four-year average. In 2021, an average of $346,024 was invested in each company. The majority of investments were made in new ventures. The data indicate increased angel activity in Western Canada and Atlantic Canada. Additionally, we are excited to report new investment activity in Yukon. In contrast to Investment Activity illustrated in the pie chart above, Dollar Amount Invested shows Central Canada at 72%, Western Cana- da at 17%, Atlantic Canada at 11% and Northern Canada at less than 1%.

5%

Atlantic Canada

1%

Northern Canada

Composition of Reported Investments: New vs. Follow-on

80% New Investments 20% Follow-on Investments

Due to rounding, figures may not total 100%.

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

2022 REPORT HIGHLIGHTS Investment Activity Overview

8

Investments Concentrated in Information Technology, Healthcare, and Consumer Discretionary Sectors FIGURE 3

Information Technology 31.2%

Health Care 21.1%

Consumer Discretionary 14.4%

In 2021, Information Technology, Healthcare, and Consumer Discretionary were the top sec- tors for investment. This is a continuation of a trend present in 2020, when the Information Technology and Healthcare sectors received the most investments.

Industrial 7.1%

Financials 6.7%

Energy 5.9%

Materials 4.3%

Consumer Staples 3.2%

Real Estate 2.8%

Communication Services 2.0%

Due to rounding, figures may not total 100%.

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

2022 REPORT HIGHLIGHTS Investment Activity Overview

9

Preferred Shares 35.2%

Convertible Debt 33.1%

Sharp Increase in Use of SAFE Notes FIGURE 4

SAFE Notes 15.5%

Common Shares 14.1%

In 2021, angel investors structured deals using a variety of investment instruments. Preferred shares (32%) and convertible debentures (25%) were the most commonly used instruments, while SAFE notes (Simple Agreement for Future Equity) structured 15% of deals. By contrast, debt instruments were uncommon in 2021, structuring just 2% of deals. Two clear trends are apparent. First, the propor- tion of deals using preferred shares has increased significantly in recent years (19% in 2019; 33% in 2020). Second, there has been a sharp increase in the use of SAFEs, up from 7% in 2020.

Debt 1.4%

Warrants 0.7%

What is a SAFE?

The Canadian Simple Agreement for Future Equity (SAFE) is modeled after the American SAFE first developed by Y Combinator, a prominent Bay Area incubator. Essentially, SAFEs are a form of investment contract between startups and investors wherein investors, in return for contributing capital, obtain the right to receive equity shares in the startup following the occurrence of pre- determined trigger events.

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

2022 REPORT HIGHLIGHTS Investment Activity Overview

10

40

Decreased Variation in Valuations FIGURE 5

30

Overall, valuations were lower in 2021 than in 2020. The median valuation in 2021 was $5 mil- lion, a decrease from $6 million in 2020. There is less variation in valuations in 2021 compared to 2020 with half of investments valued between $2 million and $6 million and slightly more than half (55%) valued at $6 million or less. 27% of early-stage investments were made at valuations of $10 million and above (similar to the proportion in 2020).

20

10

Up to $2m $2-4m $4-6m $6-8m $8-10m $10m+

Valuations in Millions of $

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

2022 REPORT HIGHLIGHTS Investment Activity Overview

11

2017 2018 2019 2020 2021

100%

Highest Recorded Participation from Women Angel Investors To-date FIGURE 6

75%

Over the past 5 years, we have reported a steady upward trend in the participation of women in the angel investment ecosystem. In 2021, we have tracked a 27% participation rate from women angel investors. This is a 60% increase from 2019 and 2018 stats. There has been a 50% increase in women angel investors over the past 4-year average (2017: 14%; 2018: 17%; 2019: 17%; 2020: 24%).

50%

25%

Women

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

2022 REPORT HIGHLIGHTS Investment Activity Overview

12

Funding Success Funnel FIGURE 7

100% (7,753)

Application

Of the 7,753 businesses that approached an- gel organizations in 2021, 20% were selected for presentation to investors. Angels undertook due diligence on 29% of the businesses that reached the presentation stage. This represents 5% of the businesses that initially approached these groups for funding. Even when they are not funded, entrepreneurs still receive valuable guidance and training throughout the process. 2021 saw a continued increase in demand for angel capital with 7,753 businesses approaching angel organizations in 2021 compared to 6,539 in 2020.

20% (1,553)

Presentation

Due Dilligence

6% (461)

5% (413)

Funded

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

Download the full report at nacocanada.com/report

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

2022 REPORT HIGHLIGHTS Participating Organizations

14

Accelerate Okanagan Founded 2010 Kelowna, British Columbia www.accelerateokanagan.com

Bluesky Equities Founded 2008 Calgary, Alberta www.blueskyequities.com

East Valley Ventures Founded 2011 St. John’s, New Brunswick www.eastvalleyventures.com

First Line Capital (Burlington) Founded 2005 Burlington, Ontario

Angel One Investor Network Founded 2011 Burlington, Ontario www.angelonenetwork.ca

Brightspark Ventures Founded 1999 Montreal, Quebec www.brightspark.com

GIC Merchant Bank Founded 2017

Canadian International Angel Investors Founded 2010 Halifax, Nova Scotia www.ciangelinvestors.com Capital Angel Network Founded 2009 Ottawa, Ontario and Gatin- eau, Quebec region www.capitalangels.ca

Anges Québec Founded 2008 Montréal and Québec City www.angesquebec.com

Toronto, Ontario www.gicmb.com

Golden Triangle Angel Network Founded 2009 Cambridge, Ontario www.goldentriangleangelnet.ca

Backbone Angels Founded 2021 Toronto, Canada www.backboneangels.com

Greensky Capital / The GreenSky President’s Club Founded 2010 Toronto, Ontario www.greenskycapital.com

BizField Angel Network Founded 2016 Burnaby, British Columbia www.bizfieldangel.com

DealPoint Capital Founded 2012 Calgary, Alberta www.poweredbydealpoint.io

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

2022 REPORT HIGHLIGHTS Participating Organizations

15

HaloHealth Founded 2020 Toronto, Ontario www.halohealth.ca

Niagara Angel Network Founded 2010

The51 Founded 2019 Calgary, Alberta www.the51.com

Niagara Region, Ontario www.niagaraangels.com

Two Small Fish Ventures Founded 2014 Toronto, Ontario www.twosmallfish.vc

Island Capital Partners Founded 2017 Charlottetown, Prince Edward Island www.peislandcapitalpartners.com

Northern Ontario Angels Founded 2005 Thunder Bay, Ontario www.northernontarioangels.ca Southeastern Ontario Angel Network Founded 2014 Ontario www.soangels.ca

VANTEC / VANTEC Affiliates Founded 1999 Vancouver, British Columbia www.vantec.ca York Angel Investors Inc. Founded 2008 Markham, Ontario www.yorkangels.com Yukon Venture Angels Founded 2021 Whitehorse, Yukon Territory www.yukonventureangels.ca Valhalla Private Capital Founded 2017 Calgary, Alberta www.valhallaprivatecap.com

InterGen Founded 2018 Calgary, Alberta www.intergenconnect.com

Keiretsu Forum Canada Founded 2012 Toronto, Ontario www.keiretsuforum.ca

Southwestern Ontar- io Angel Group

Founded 2008 London, Ontario www.swoangel.com

Maple Leaf Angels Founded 2007 Toronto, Ontario www.mapleleafangels.com

Spark Angels Founded 2012 Oshawa, Ontario www.sparkangels.ca

This report includes data from participating organizations and a subset of data from public sources.

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

This report is produced by the National Angel Capital Organization (NACO).

National Angel Capital Organization (NACO) members have invested $1.38 billion into 2,000 Canadian companies. Incorporated in 2002, NACO is Canada’s professional association for angel investors and the only national platform for angel collectives and the innovation hubs that support Canada’s entrepreneurs. NACO’s national network includes 4,200 angel investors, 50 incubators and accelerators, and 45 angel groups.

NACO MaRS Centre Heritage Building 101 College Street, Suite 120G Toronto, Ontario M5G 1L7 www.nacocanada.com Phone +1 (416) 581-0009 Email contact@nacocanada.com

2022 ANNUAL REPORT ON ANGEL INVESTING IN CANADA The Changing Landscape

Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16

builtbyangels.com

Powered by