Supporting Angel Investing in the Coronavirus Crisis

National Angel Capital Organization’s (NACO) annual reports demonstrate the critical role that angel investment activity plays in Canada’s entrepreneurial ecosystem. NACO represents over 4,000 angel investors, 44 angel groups, and 45 Incubators and Accelerators. The 2019 Annual Report includes data from 30 active angel group, 25 of which made investments in 2019. The groups reported 299 investments that attracted $163.9 million of investment by angel investors. The median size of investment was $169,814, with a mean of $506,987, refecting a small number of atypically large investments. Moreover, these fgures under-represent the magnitude of angel investment activity in Canada. First, it excludes investments made by angel groups that did not participate in the survey. Second, it does not capture investments made by angels on their own and in informal groups that go unrecorded. This segment is to be 10 to 20 times larger than the visible market. The importance of angels goes beyond their money. Angel investors are successful founders, business professionals (e.g. accountants, physicians, lawyers) and board members in large corporations to contribute their knowledge and expertise, networks and psychological and emotional support to their startups. A recently formed network of physician angels is working with NACO to turn some of Canada’s more than 89,000 medical doctors and health care professionals into active angel investors and mentors to entrepreneurs. This non-fnancial support is at least as signifcant as the money that angels invest. The coronavirus pandemic has placed both the Canadian and global economy at risk of an economic depression of unprecedented scale. Innovative equity-fnanced companies will play a key role in the economic recovery. The disruptions that economic crises cause to established markets create opportunities for entrepreneurs to launch innovative businesses based on new products, services and business models. After the 2008–2009 recession, WhatsApp, Slack, Airbnb, Stripe, Uber, Waymo, Pinterest and GitHub grew to global success. It is therefore critical that angels continue to invest in startups.

The impact of the coronavirus crisis on angel investing: likely scenarios

The most plausible scenario is that angel investment activity will decline over the next 12-24 months while demand from founders for investment capital is likely to increase. In particular, tech entrepreneurs will seek to exploit new opportunities in a post-COVID-19 world. This scenario is based on fve likely developments. First, most VC frms are expected to focus on their existing portfolios, both to extend the fnancial runway of those frms and to refect their own inability to raise further fnance from their Limited Partners. VCs will not have the bandwidth to consider new investments. The

National Angel Capital Organization MaRS Centre, West Tower

Tel: +1.416.581.0009 contact@nacocanada.com www.nacocanada.com

101 College St, Suite 120G Toronto, ON M5G 1M1

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