2023 Annual Report on Angel Investing in Canada
Seeding Innovation
In shining a national spotlight on the incredible leaders featured on the cover and throughout this report, we aspire to motivate additional widespread innovation that transforms inertia into action, barriers into opportu- nities and gaps into indicators of how much more is possible.
Hungerhub, Sari Abdo
Requity Homes, Amy Ding
True Angle, Jana Rieger
A4i, Amos Adler
A4i, Sean Kidd
Vessl Prosthetics, Sydney Robinson
AlumaPower Corporation, Robert Alexander
Fortay, Marlina Kinnersley
Aurea, Cat Adalay
Open Ocean Robotics, Julie Angus
LearnExperts, Sarah Sedgman
Anatomiz3D Healthcare, Firoza Kothari
Paperstack, Assel Beglinova
Anatomiz3D Healthcare, Karan Shah
Anatomiz3D Healthcare, Sohrab Kothari
Crowdmark, Michelle Caers
Paperstack, Vadim Lidich
Anatomiz3D Healthcare, Sagar Shah
Algae C, Mather Carscallen
Protexxa, Claudette McGowan
erthos, Nuha Siddiqui
Crowdmark, James Colliander
Babbly, Maryam Nabavi
erthos, Kritika Tyagi
Goodlawyer, Brett Colvin
Litus, Ghada Nafie
Proof, Ben Sanders
True Angle, Gabriela Constantinescu
Virtual Gurus, Bobbi Racette
Vessl Prosthetics, Oleksiy Zaika
Spotwork, Daniel Copeland
Mission Control, Ewan Reid
Seeding Innovation
This evidence-based report is the 13th annual report conducted by the National Angel Capital Organization and has tracked $1.54 billion of investment. In analyzing year-on-year trends across the angel investment landscape in 2022, this report provides in-depth insights into the evolution, health and trajectory of Canada’s innovation economy.
2023 Annual Report on Angel Investing in Canada
Report Review Committee
Lead Author
Jennifer Francis Chair at Capital Angel Network
Brea Lake CEO at Accelerate Okanagan
Colin Mason Professor of Entrepreneurship, Adam Smith Business School, University of Glasgow, Scotland, UK.
Jérôme Nycz EVP at BDC Capital
Brenda Hogan CIO at Venture Ontario
He is also the lead author of the 2010, 2011, 2015, 2016, 2017, 2018, 2019, 2021 and 2022 reports on Angel Investment in Canada.
We wish to express appreciation to the members of the Report Review Committee for their advice, direction and feedback during the formative drafts of this report.
Mary Moran Former President and CEO at Calgary Economic Development
Catherine Warren CEO at Edmonton Unlimited
All views are those of the respective author(s).
Publication Date: December 2023
Claudia Krywiak President and CEO at Ontario Centre of Innovation
Mike Wessinger Co-Founder and Executive Chair of PointClickCare
Geneviève Tanguay CEO at Anges Québec
Peter Moreira Principal at Entrevestor
Ian Lane Executive Director at Northern Ontario Angels
Sandi Gilbert Managing Partner at InterGen
Sara Mohajerani Portfolio Manager - Seed Stage at Bluesky Equities Ltd.
Jeff White CEO at New Brunswick Innovation Foundation
Mobilizing Capital for Canada's Entrepreneurs
NACO members have invested $1.54 billion into more than 2,400 Canadian companies. Incorporated in 2002, NACO is Canada’s professional association for angel investors and the national umbrella for over 100 organizations including angel groups, venture funds, incubators and accelerators. In partnership with the Government of Canada, NACO engages in research to inform evidence-based policy development, administers the incubator and angel streams of Canada’s Start-up Visa program, and advances initiatives that promote inclusive economic prosperity in Canada.
nacocanada.com
Thank You
Our national network includes many inspiring leaders that amplify the impact of our initiatives. We are grateful to the following organizations for their contributions to our work.
A100
BC Tech
CanNew Innovation Inc.
Durham's Neighbourhood Association of Angel Investors
Accelerator Centre
BCF Ventures
Capital Angel Network
East Valley Ventures
Accelerate Okanagan
BizField Angel Network
Capital Investment Network
Economic Development Lethbridge
Afro Caribbean Business Network
Bright Spark
Centech
Edmonton Regional Innovation Network
Alacrity Canada
Brookfield Institute
City of Grande Prairie
Entrepreneur First
Alberta Agriculture and Forestry Food and Bio Processing Branch
Brilliant Catalyst
CIBC
Entrevestor
Business Development Bank of Canada
Cloudflare
Alberta Enterprise Corporation
Entrepreneurship Hatchery at University of Toronto
Canada Economic Development for Quebec Regions (CED) / Développement économique Canada pour les régions du Québec (DEC)
Co.Labs
Alberta Innovates
Communitech
Extreme Venture Partners
Alberta IoT Association
Federal Economic Development Agency for Southern Ontario Federal Economic Development Agency for Northern Ontario
Concrete Ventures
Angel Forum
Canadian International Angel Investors
Creative Destruction Lab
Angel One Investment Network
Canadian Northern Economic Development Agency
Deloitte Canada
Anges Québec
Firstline Capital
Dentons Canada LLP
Canadian Venture Capital and Private Equity Association (CVCA)
Atlantic Canada Opportunities Agency
Thank You
Frontier Collective
Innovation Cluster Peterborough and the Kawarthas
Mariner Partners
Ontario Tech University
FounderFuel
Manitoba Technology Accelerator
Pacific Technology Ventures Ltd.
Innovation Factory
Foresight Cleantech Accelerator Center
Maple Leaf Angels
Panache Ventures
Innovate Niagara
Him for Her
MaRS Discovery District
Paper
Innovation Park at Queen's University
Gamma
Matr Ventures
Pelorus Venture Capital
Innovacorp
Genesis
Mavan Capital
Peterborough Region Angel Network
Innovation XL at Queen's University
Georgian Angel Network
Millworks Centre for Entrepreneurship
Planet Hatch
Innovation, Science and Economic Development Canada
GIC Merchant Bank
Mindbridge AI
Platform Calgary
Golden Triangle Angel Network
Mississauga Business Enterprise Centre
Plendify Inc.
Intrinsic Innovations
Government of Alberta
Mitacs
PointClickCare
Invest Ottawa
Government of Yukon
MVP Angel Investments Inc
ProChile
Island Capital Partners
GreenSky President’s Club
National Research Council of Canada Industrial Research Assistance Program (IRAP)
Propel ICT
Ivey Business School
HaloHealth
Pycap Venture Partners
Kingston Economic Development Corporation
HaTCH
RBC
NEXT Canada
Killick Capital
Highline Beta
Real Ventures
New Brunswick Innovation Foundation
Keiretsu Forum Central Canada
iGan Partners
Red Leaf Capital
Niagara Angel Network
LatAm Startups
Ignite Atlantic
RIC Centre
North Forge East Incorporated
Launch Academy
Ignite Fredericton
Roseview Capital
North Forge Technology Exchange
LaunchPad PEI
Innovate Calgary
Roseview Global Incubator
Northern Ontario Angels
Thank You
RVC Worldwide
University of New Brunswick - J Herbert Smith Center
Yukon Venture Angels
Spark Commercialization and Innovation Centre
Zinc Ventures
University of Windsor
Spring Activator
Valhalla Private Capital
And many more
SOAN
ventureLAB Innovation Centre
SquareCircle Ventures
Venn Innovation
Southwestern Ontario Angel Group
VANTEC
Startup Zone
VIATEC
TandemLaunch
Volta
TechAlliance of Southwestern Ontario
Waterloo Accelerator Centre
Techstars Toronto
Wattpad
The DMZ
Western Economic Diversification Canada
The Narwhal Project
Windsor-Essex Capital Angel Network
The51
Women’s Equity
Think8 Global Institute
York Entrepreneurship Development Institute
TIE Toronto
York Angel Investors Inc.
Toronto Business Development Centre
YSpace, York University
Tree Frog Accelerator
Yukon First Nation Chamber of Commerce
Two Small Fish Ventures
THANK YOU
We would like to recognize our global and national community partners that support our work.
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Preface: Seeding Innovation
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Executive Summary
54
1. Introduction
55 57 64
1.1
The Role of Angel Investors in the Entrepreneurial Ecosystem
1.2 1.3 1.4
Angel Investment Data Sources
Investment Activity of Angel Organizations in 2022 – An Overview
71
Summary
75
2. Angel Organization Characteristics
76 77 82 87 90
2.1 2.2 2.3 2.4 2.5 2.6 2.7
Introduction
Organizational Structure
Fee Structures
Age of Organizations
Size of Organizations – Membership Numbers
Table of Contents
91
Gender of Organization Membership Investment Activity by Organization
98
104
3. Investment Activity in 2022
105 106 109 115 119 126 132 135 150
3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9
Demand for Angel Investment
The Financing Funnel
Investments
Deal Structures
Valuations
Investment Characteristics – Industry Sector Investment Characteristics – Firm Size Investment Characteristics – Regional Distribution
Exits
151
4. The Investment Environment
152 155 159 165
4.1 4.2 4.3 4.4
The Investment Climate for Angel Investing in 2022
COVID-19 Legacy Effects Market Changes in 2022
Angel Organizations in the Entrepreneurial Ecosystem
168
5. Government Support for Angel Investing
176
6. Policy Recommendations
186
7. Conclusion
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Seeding Innovation Preface
MARY LONG-IRWIN Board Chair National Angel Capital Organization
CLAUDIO ROJAS CEO National Angel Capital Organization
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
PREFACE
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Seeding Innovation
Over the past year, the Canadian innovation economy has faced formidable challenges, primarily due to es- calating economic uncertainties that have impacted entrepreneurs and venture funds in their capital-rais- ing efforts. These conditions, exacerbated by increas- ing borrowing costs, have stifled many small business- es, underscoring the vital role of angel capital – both through direct investment and from limited partners in venture funds – in sustaining Canada’s innovation economy. Encouragingly, the past year has also witnessed a re- markable surge in diversity within angel organizations, with women's participation increasing more than two- fold since 2019. This progress reflects the power of public policy in mobilizing the private sector. While we celebrate this progress, we acknowledge that further efforts are necessary to enhance diversity across all di- mensions of our innovation economy, ensuring that we leave no entrepreneur behind. Our recent 'Moonshots 2030' event, in collaboration with NACO member organization MaRS Discovery Dis- trict, showcased Canada’s entrepreneurial spirit and po- tential. Twenty of Canada's most promising high-growth
CLAUDIO ROJAS, CEO, NATIONAL ANGEL CAPITAL ORGANIZATION AT MOONSHOTS 2030
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PREFACE Seeding Innovation
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entrepreneurs, selected from over 150 nationwide nomi- nations, shared compelling stories of innovation, capital raising, and global market expansion. This event not only highlighted the vision and drive of Canada’s entrepre- neurs but also the critical role of angel investments in fostering high-growth companies. NACO data from 2019 to 2022, analyzed alongside the Canadian Venture Capital & Private Equity Association (CVCA) outcomes, presents a compelling picture: Ap- proximately 60-80% of companies that achieved suc- cessful outcomes, including mergers, acquisitions, and IPOs, were nurtured by angel investments. These invest- ments have yielded returns upwards of 100x on invest- ed capital, with some exits surpassing 1,000x, and have resulted in capital being reinvested back into the eco- system when entrepreneurs have successful outcomes, thereby perpetuating a cycle of innovation. Despite these successes, small and medium-sized enter- prises (SMEs) – the epicenter of Canadian entrepreneur- ship – are facing unprecedented challenges. Represent- ing 88.3% of all private sector employment in 2020 and contributing over half of the nation's economic output, SMEs are the backbone of the Canadian economy.
THE HONOURABLE FILOMENA TASSI MINISTER OF FEDDEV ONTARIO AT MOONSHOTS 2030
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However, they currently face pressures on multiple fronts. When harmonized with the economic magnitude of large, high-growth companies, SMEs are a potent and dynamic force with unparalleled potential. Success stories like Shopify, Hootsuite, and Slack, which transformed from small startups to global lead- ers, exemplify the transformative impact of angel in- vestments. These companies leveraged access to capi- tal, mentorship, and collaborative networks to fuel their extraordinary growth. The angel-backed entrepreneurs showcased on the cover and within this report, under- score the tangible impact of angel investments. Looking ahead, our goal is to cultivate a thriving eco- system that embodies a renewed spirit of collaboration, coordination, and national strength at the early-stage of the entrepreneurial journey. Our angel investors are hyperlocal, and NACO is increasingly local as we inten- sify our partnerships across our national network of 100+ organizations, including angel groups, early stage funds, incubators, and accelerators.
KESHIA CHANTÉ, SINGER, TELEVISION PERSONALITY, AND ENTREPRENEUR AT MOONSHOTS 2030
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
PREFACE Seeding Innovation
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A reflection of this commitment is the NACO Nation- al Women’s Initiative, announced in partnership with the Government of Canada’s Women Entrepreneurship Strategy. This initiative will fund NACO network orga- nizations with a proven track record of driving impact for women entrepreneurs and investors – including partners like Brightspark Capital and Anges Quebec (Montreal); The51 Venture Fund and InterGen (Calgary); Yukon Venture Angels and Yukonstruct (Yukon); Invest Ottawa, Capital Angel Network (Ottawa); Island Capital Partners (Charlottetown), Genesis Centre (Newfound- land); Okanagan WMAN and Accelerate Okanagan (Kelowna), among others. This initiative is just the beginning of our journey to support SMEs and future high-growth companies in communities across the country. By building a nation- al ecosystem of coordinated, collaborative, and mis- sion-driven organizations focused on mobilizing angel investment, especially for women entrepreneurs, we aim to not only help our entrepreneurs survive but also thrive at their fullest potential.
This year’s Annual Report on Angel Investing in Canada reflects not only on the progress made but also sets the stage for the future. To achieve sustainable econom- ic growth, we must harness the collective strength of our knowledge, capital, and networks, paving the way for the next generation of world-class SMEs and high- growth Canadian companies. With more exciting announcements on the horizon, we are poised to leverage our national network to support visionary entrepreneurs in driving Canada’s economic growth, together.
MARY LONG-IRWIN Board Chair National Angel Capital Organization
CLAUDIO ROJAS CEO National Angel Capital Organization
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
PREFACE Seeding Innovation
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“There are so many incredible entrepreneurs developing new products that are going to lead to a stronger, more efficient and sustainable future for Canada.” - THE HONOURABLE FILOMENA TASSI, MINISTER OF FEDDEV ONTARIO, AT MOONSHOTS 2030
“Entrepreneurship is very exciting. It's the risk taking. It's the feeling of am I going to take this further? Am I going to think even bigger outside of the box?” - KESHIA CHANTÉ, SINGER, TELEVISION PERSONALITY, AND ENTREPRENEUR, AT MOONSHOTS 2030
“The future belongs to those who are willing to innovate and disrupt.” - YUNG WU, CEO OF THE MARS DISCOVERY DISTRICT, AT MOONSHOTS 2030
“I have learned that entrepreneurship is not just about building a successful business. It's about making a positive impact on people's lives.” - AMY DING, FOUNDER & CEO OF REQUITY HOMES, AT MOONSHOTS 2030
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Soutenir l’innovation Préface
MARY LONG-IRWIN Présidente du Conseil National Angel Capital Organization
CLAUDIO ROJAS PDG National Angel Capital Organization
2023 RAPPORT ANNUEL SUR L’INVESTISSEMENT PROVIDENTIEL AU CANADA
PRÉFACE
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Soutenir l’innovation
Lors de la dernière année, l’économie canadienne de l’innovation a été confrontée à des défis considérables, principalement en raison de l’incertitude économique croissante qui a affecté les efforts de levées de capi- taux des entrepreneurs et des fonds de capital de ris- que. Ces conditions, exacerbées par l’augmentation des coûts d’emprunt, ont mis de la pression sur de nom- breuses petites entreprises, soulignant le rôle vital que joue le capital providentiel pour l’avenir de l’économie de l’innovation au Canada, que ce soit par le biais d’in- vestissements directs ou par l’implication des comman- ditaires dans les fonds de capital de risque. De façon encourageante, l’année dernière a également marqué une augmentation importante de la diversité au sein des organisations d’investisseurs providentiels. On y note notamment que la participation des femmes a plus que doublée depuis 2019. Ce progrès démon- tre l’impact positif que peut avoir la politique publique dans la mobilisation du secteur privé. Alors que nous célébrons cette avancée, nous devons reconnaître que des efforts supplémentaires seront nécessaires pour améliorer la diversité dans toutes les sphères de notre économie de l’innovation, afin d’assurer qu’aucun en- trepreneur ne soit laissé de côté.
STEPHANY LAPIERRE FONDATRICE ET PDG TEALBOOK
2023 RAPPORT ANNUEL SUR L’INVESTISSEMENT PROVIDENTIEL AU CANADA
PRÉFACE Soutenir l’innovation
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Notre récent événement « Moonshots 2030 » organisé en collaboration avec MaRS Discovery District, une or- ganisation membre du réseau NACO, a permis de faire valoir le potentiel de l’esprit entrepreneurial au Canada. Lors de cet événement, vingt entrepreneurs à fort po- tentiel de croissance ont été choisis parmi un groupe de plus de 150 nominations à l’échelle nationale pour partager leurs expériences inspirantes sur l’innova- tion, le financement et l’expansion à l’international. Cet événement a non seulement mis en lumière la vision et le dynamisme des entrepreneurs canadiens, mais aussi le rôle essentiel des investissements providentiels dans le soutien d’entreprises à forte croissance. Des données fournies par NACO pour la période en- tre 2019 et 2022 ont été analysées aux côtés de celles de l’Association canadienne du capital de risque et de l’investissement privé (CVCA), pour présenter un tab- leau convaincant. Entre 60% et 80% des entreprises qui ont connu des succès importants, notamment des fusions et acquisitions et des premiers appels publics à l’épargne, ont été soutenues par des capitaux prov- identiels. Certains de ces investissements ont généré des rendements supérieurs à 100 fois le capital investi, avec des sorties à plus de 1000 fois. Ce faisant, ces
L’HONORABLE FILOMENA TASSI MINISTRE DE l’AGENCE FÉDÉRALE DE DÉVELOPPEMENT ÉCONOMIQUE POUR LE SUD DE L’ONTARIO AU MOONSHOTS 2030
2023 RAPPORT ANNUEL SUR L’INVESTISSEMENT PROVIDENTIEL AU CANADA
PRÉFACE Soutenir l’innovation
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rendements ont pu être réinvestis dans l’écosystème, perpétuant ainsi le cycle d’innovation.
Malgré ces succès, les petites et moyennes entreprises (PME) qui sont au cœur même de l’entrepreneuriat ca- nadien font face à des défis sans précédent. Représen- tant 97,9% des emplois du secteur privé en 2020 et con- tribuant à plus de la moitié de la production économique de la nation, les PME occupent une place centrale dans l’économie canadienne. Mais elles font actuellement face à des pressions sur plusieurs fronts. Lorsqu’har- monisées avec l’ampleur économique des grandes en- treprises à forte croissance, les PME constituent une force puissante et dynamique au potentiel inégalé. Les modèles de réussite comme Shopify, Hootsuite et Slack, qui sont passés du stade de petites startups à des leaders mondiaux, démontrent le potentiel transfor- mateur que peut avoir l’investissement providentiel. Ces entreprises ont su tirer parti de l’accès aux capitaux, au mentorat et aux réseaux collaboratifs qu’offre le cap- ital providentiel pour alimenter leur impressionnante croissance. Les entrepreneurs soutenus par des anges financiers qui figurent sur la page couverture ainsi que
SEVRINE LABELLE DIRECTRICE GÉNÉRALE LAB EXCELLES, BDC
2023 RAPPORT ANNUEL SUR L’INVESTISSEMENT PROVIDENTIEL AU CANADA
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dans ce rapport témoignent ainsi de l’impact tangible des investissements providentiels.
gels et Yukonstruct (Yukon), Invest Ottawa, Capital An- gel Network (Ottawa), Okanagan WMAN et Accelerate Okanagan (Kelowna), parmi d’autres. Cette initiative n’est que le début de notre parcours qui vise à soutenir les PME et les entreprises à fort poten- tiel de croissance qui sont présentes dans nos commu- nautés à travers le pays. En construisant un écosystème national coordonné, collaboratif et dévoué à la mobil- isation des investissements providentiels, particulière- ment pour les femmes entrepreneures, nous allons aid- er nos entrepreneurs à survivre et atteindre leur plein potentiel. Cette année, le Rapport annuel sur l’investissement providentiel au Canada reflète non seulement les pro- grès réalisés, mais il prépare également le terrain pour l’avenir. Pour atteindre une croissance économique du- rable, nous devons miser sur la force collective de nos connaissances, de nos capitaux et de nos réseaux, afin d’ouvrir la voie à la prochaine génération de PME de classe mondiale et d’entreprises canadiennes à fort po- tentiel de croissance.
En tournant notre regard vers l’avenir, notre objectif est de cultiver un écosystème florissant qui incarne un es- prit renouvelé de collaboration, de coordination et de vi- gueur au niveau national, et ce, dès les premières étapes du parcours entrepreneurial. Nos anges financiers sont fortement impliqués dans leurs communautés, et NACO devient de plus en plus présente localement alors que nous intensifions nos partenariats à travers notre ré- seau national de plus de 100 organisations, incluant des groupes d’anges financiers, de fonds de démarrage, d’incubateurs et d’accélérateurs. Un reflet de cet engagement est l’Initiative nationale pour les femmes de NACO, annoncée en partenariat avec la Stratégie pour les femmes en entrepreneuriat du gouvernement du Canada. Cette initiative financera des organisations membres du réseau NACO ayant démon- tré leur capacité à soutenir les femmes entrepreneures et investisseuses, incluant des partenaires tels que Brightspark Capital et Anges Québec (Montréal), The51 Venture Fund et InterGen (Calgary), Yukon Venture An-
2023 RAPPORT ANNUEL SUR L’INVESTISSEMENT PROVIDENTIEL AU CANADA
PRÉFACE Soutenir l’innovation
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“L’entrepreneuriat vraiment excitant. C’est la prise de risque. C’est le sentiment de se demander si on va plus loin ? Vais-je penser encore plus grand et en dehors des sentiers battus ? » - KESHIA CHANTÉ, CHANTEUSE, est PERSONNALITÉ DE LA TÉLÉVISION ET ENTREPRENEURE, AU MOONSHOT 2030 “J’ai appris que l’entrepreneuriat n’est pas seulement à propos de bâtir une entreprise qui a du succès. Mais que c’est également à propos de l’impact positif que l’on peut avoir sur la vie des gens. » - AMY DING, FONDATRICE ET PDG, REQUITY HOMES, AU MOONSHOT 2030
Il y a plusieurs annonces excitantes à venir, et nous sommes dévoués à faire évoluer notre réseau na- tional au profit d’entrepreneurs visionnaires. Ensem- ble, nous sommes engagés à soutenir la prospérité économique du Canada.
MARY LONG-IRWIN Présidente du Conseil National Angel Capital Organization
CLAUDIO ROJAS PDG National Angel Capital Organization
“Il y a tellement d’entrepreneurs incroyables qui développent de nouveaux produits qui contribueront à un avenir plus fort, plus efficace et durable pour le Canada. » - L’HONORABLE FILOMENA TASSI, MINISTRE DE L’AGENCE FÉDÉRALE DE DÉVELOPPEMENT ÉCONOMIQUE POUR LE SUD DE L’ONTARIO, AU MOONSHOTS 2030
“Le futur appartient à ceux qui sont prêts à innover et à bouleverser les normes établies. » - YUNG WU, PDG DU MARS DISCOVERY DISTRICT, AU MOONSHOT 2030
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Spotlight on
The following designated organizations support eligible immigrant entrepreneurs on their journey to establishing their businesses in Canada.
NACO administers the business incubator and accelerator stream and angel investor stream of the Immigration, Refugees and Citizenship Canada (IRCC) Start-up Visa Program by des- ignating leading angel organizations and incu- bators/accelerators from across the country.
Agrivalue Processing Business Incubator Alacrity Foundation Alberta Agriculture and Forestry Alberta IoT Association Altitude Accelerator Biomedical Commercialization Canada Inc. (op- erating as Manitoba Technology Accelerator) Bhive Brilliant Catalyst Canadian International Angel Investors Creative Destruction Lab
Innovation Factory Interactive Niagara Media Cluster o/a Innovate Niagara
Spark Commercialization and Innovation Centre Spring Activator TenX Angel Investors Inc. The DMZ at Ryerson University Think8 Global Institute TiE Toronto Toronto Business Development Centre (TBDC) Treefrog TSRV Canada Inc. (operating as Techstars Canada) University of Toronto
Intrinsic Innovations Invest Nova Scotia
ISM Arts & Culture Ltd Keiretsu Forum Canada Knowledge Park o/a Planet Hatch LatAm Startups Launch Academy - Vancouver LaunchPad PEI Inc. Millworks Centre for Entrepreneurship Niagara Business & Innovation Fund NEXT Canada North Forge East Ltd. North Forge Technology Exchange Oak Mason Investments Inc. Pacific Technology Ventures Platform Calgary Pycap Inc (o/a Pycap Venture Partners) Real Investment Fund III L.P. o/a FounderFuel Red Leaf Capital Corp Roseview Global Incubator
DMZ Ventures Ekagrata Inc. Empowered Startups Ltd. Extreme Innovations
Entrepreneurship Hatchery VANTEC Angel Network Inc. VIATEC
ventureLAB Innovation Centre Waterloo Accelerator Centre York Angel Investors Inc. York Entrepreneurship Development Institute YSpace (York University)
Food Processing Development Centre Foresight Cleantech Accelerator Centre Genesis Centre Golden Triangle Angel Network Highline BETA Inc. Innovacorp Innovate Calgary Innovation Cluster - Peterborough and the Kawarthas
To learn more visit nacocanada.com/startupvisa
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WOMEN IN TECH BREAKFAST HOSTED BY NACO AT CULTIVATOR STARTUP SUMMIT 2023
Leverage the collective knowledge of 4,200 angel investors across over 20 years of experience designing frameworks for investing at the angel, syndicate and fund level across sectors, themes and strategies.
nacocanada.com/academy
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
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Executive Summary
COLIN MASON
Professor of Entrepreneurship, Adam Smith Business School University of Glasgow Scotland, UK
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Introduction Executive Summary
T he financing needs of innovative startups, partic- ularly in technology sectors, typically exceed their capability to generate funds internally, while their ability to attract bank loans (debt finance) is restricted by their lack of collateral and negative cash flows. In order to win markets, these firms have to grow and scale their businesses quickly. However, the faster a firm grows, the higher its requirement for cash to invest in research and development (R&D), product development and test- ing, recruitment of key team members, premises, spe- cialized equipment, marketing, sales and distribution capability, and inventories.
Firms utilize various sources of funding at different points in their development to finance their growth. Angel investors, defined as high-net-worth individuals, usually with entrepreneurial or senior corporate back- grounds, who are investing their own money along with their expertise either on their own or, increasingly, as a member of organized angel organizations, are typically the first external investors in such businesses. Angels are the biggest investors at the seed and start- up stages, both in terms of amounts invested and the number of investments. It has been estimated that an-
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
EXECUTIVE SUMMARY Introduction
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This is the 13th annual Report on Angel Investment in Canada. It is based on information provided by 37 angel organizations on their investment activity in 2022. The number of organizations reporting in 2022 is similar to previous years.
gel investors make 20-40 times as many investments as venture capital firms. Some angel-backed ventures will go on to raise further rounds of finance from ven- ture capital firms, emphasising their role at the start of the funding pipeline. It is increasingly common for an- gel organizations to invest as part of syndicated deals, investing alongside other investors, including other an- gels, venture capital firms, government co-investment funds, and equity crowdfunding. Angel investors are difficult to identify. Many angels are independent investors who invest on their own or with others on an ad hoc basis. Their investments largely oc- cur ‘below the radar’ and are therefore extremely diffi- cult to identify and document and are rarely captured in investment databases. The analysis of angel investment activity is therefore generally restricted to investments that are made in what has been termed the visible mar- ket, comprising managed angel organizations, with the number of members ranging from 10 to upwards of 100.
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
EXECUTIVE SUMMARY Introduction
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Headline Findings • Demand for angel funding was higher in 2022 than in each of the previous three years. 7% of the busi- nesses that approached angel organizations were successful in raising finance, the highest proportion in the past four years. • Angel organizations report an increase in CleanTech and ClimateTech businesses seeking finance. • The number of investments increased by 3% and is the highest ever reported. • However, the amount invested through angel orga- nizations in 2022 dropped sharply, declining by 37% compared with 2021. Nevertheless, this is the sec- ond-highest on record. • The median size of investment in 2022 was $82,500, marginally lower than in 2021 ($85,000) and much lower than in earlier years. The mean size of investment in 2022 was also lower than in 2021 ($220,275 compared with $385,483).
• There was a decline in the median valuation ($4.5 million compared with $5 million in 2021). • There was a big drop in the rating of the investment climate (in early 2023), with a median rating of 5 compared with 6 in previous years and a mean rating of 5.2 compared with 6 and 7 in previous years (on a scale from 1-10). • Angel investments continue to be concentrated in Central Canada (Ontario and Quebec), accounting for 78% of the amount invested — the highest on a per capita basis — but just 59% of investments. • Women now account for 37% of members of angel organizations, more than doubling since 2019. This increase has been driven by the formation of several angel organizations with a higher proportion of wom- en members or exclusively for women.
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
29
An Overview of Investment Activity in 2022 Executive Summary
A ngel investment activity – which grew strongly in 2021 — continued to grow in the first half of 2022 but declined in the second half of the year as the econo- my slowed in response to the uncertain macroeconomic environment, a tightening monetary climate, rising infla- tion, higher interest rates and geopolitical uncertainty. Looking at the year as a whole, the 37 angel organiza- tions that provided information on their investment ac- tivity in 2022 (full details from 26 organizations; summa- ry information from an additional 11 organizations) made 653 investments, investing a total of $166.2 million.
Key Findings • The median number of investments made by organi- zations was 9. • The median amount invested was $1.9 million. • The mean number of investments made by organiza- tions was 17.7, with a mean of $4.5 million. • The median amount invested per company was $100,000, with a mean of $251,094.
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
30
2010-2022 Cumulative Investment
TOTAL $1,548,310,158
2022: $166.2 million
British Columbia 2022: $25,979,339 15.6% of investment 33.5 % of activity
Québec 2022: $24,851,142 15.0% of investment 7.2% of activity
The Prairies AB, SK, MB Atlantic Canada NS, PE, NB, NL Central Canada ON, QC Northern Territories YT, NT, NU
Atlantic Canada 2022: $6,123,826 3.7% of investment 3.4% of activity
$149,773,926
$318,316,574
$44,509,484
$92,159,028
$208,430,000
$735,121,146
The Prairies 2022: $4,325,000 2.6% of investment 3.7% of activity
Northern Ontario 2022: $25,490,000 15.3% of investment 42.6% of activity
Southern Ontario 2022: $79,488,536 47.8% of investment 9.6% of activity
There is presently no cumulative investment data available for the Northern Territories
There is presently no cumulative investment data available for the Northern Territories.
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
EXECUTIVE SUMMARY An Overview of Investment Activity in 2022
31
Fewer dollars were invested in 2022 than in 2021. There was a 3% increase in the num- ber of investments made, with both the me- dian and mean number of investments made by organizations increasing. However, there was a significant decline in the amount in- vested, which fell by 37% year-over-year. In addition, the median and mean amounts in- vested by organizations fell by 52% and 31%, respectively. The mean amount invested per deal fell by 27%, although there was a rise in the median amount invested per deal, lower in both 2021 and 2022.
Angel Activity Declined in 2022 FIGURE A
Number of Deals
Amount Invested ($M)
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
32
Angel Organization Characteristics Executive Summary
A majority of the organizations operating in 2022 (68%) were structured as not-for-profit entities. A further 29% were for-profit entities. This represents a break with the trend for the proportion of for-profit or- ganizations to increase over time. The majority of angel organizations — 71% — charge annual membership fees for individual members. Fees range from $250 to over $1,000 per year, with just over half (53%) of these angel organizations charging more than $1,000. Just over 60% of organizations extended membership to corporate entities, with 81% of these
angel organizations charging their corporate members a fee. Fees for corporations are typically higher than those for individuals: with one exception, corporate membership fees are in excess of $1,000 a year. The age distribution of angel organizations underlines the growing maturity of angel investing in Canada. 78% of the responding organizations have been established for more than five years and 49% have been operating for 10 years or more. Nevertheless, new organizations continue to be founded, seven of the reporting organi- zations (20%) being less than three years old.
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
EXECUTIVE SUMMARY Angel Organization Characteristics
33
five of the 24 organizations that provided detailed infor- mation on their membership. Every organization report- ed having women angel investors. The median is 18%, slightly improved compared to the previous year. There is considerable variation among organizations in terms of their level of investment activity. This is a long-standing feature. All of the 37 responding angel or- ganizations reported making one or more investments in 2022. 13 angel organizations (35%) made between one and five investments. 16 angel organizations (43%) each made more than 10 investments, with six of these orga- nizations making more than 25 investments (16%). Not surprisingly, there is a relationship between organiza- tion size (number of members) and investment activity, with smaller organizations making fewer investments than larger organizations. The most active organizations in 2022 are, once again, located in Ontario and Quebec. There is some consistency over time in the most active organizations.
There is considerable diversity in the size of organiza- tions, with membership ranging from less than 10 to more than 100. 47% of the angel organizations have 50 or fewer members; 31% of angel organizations have over 100 members. The long-term trend has seen an in- crease in the proportion of larger organizations and a decrease in the proportion of smaller organizations with 25 or fewer members. However, this trend has gone into reverse, with the proportion of larger organizations, de- fined as having over 50 members, lower in both 2021 and 2022. The proportion of women who are members of angel or- ganizations has been increasing year-over-year. Women account for 37% of the members of angel organizations in 2022, up from 27% in 2021, with the proportion more than doubling since 2017 when this information was first collected. A key driver has been the formation of angel organizations dominated by, or exclusively for, women, with women-only angel organizations accounting for
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
EXECUTIVE SUMMARY Angel Organization Characteristics
34
Overall Women Angel Participation
60%
Women Angel Participation Continued to Increase FIGURE B
40%
37%
27%
24%
20%
17%
17%
14%
2017
2018
2019
2020
2021
2022
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
35
Investment Activity in 2022 Executive Summary
D emand for angel funding in 2022 was higher than in each of the previous three years. The 26 orga- nizations that reported deal flow information for 2022 received 7,982 approaches for funding. This is a 3% increase from 2021, the third annual increase — and is higher than in every year since 2015, save for 2017 — but with the usual caveat that annual trends are in- fluenced by differences in the number of organizations reporting this information each year. 20% of these busi- nesses were selected for presentation to members. An- gels undertook due diligence on 40% of the businesses that were invited to present, ultimately investing in 88%
of these businesses once due diligence was complete. This represents 7% of the businesses that initially ap- proached these organizations for funding. The organizations that reported their investment activ- ity made 654 investments in 2022, investing a total of $166.2 million. In comparison with 2021, this represents a slight increase (3%) in the number of investments and a much larger decrease in the amount invested (-37%). Taking a longer-term perspective, the number of invest- ments in 2022 was the highest ever reported, while the amount invested was higher than in nine of the past 10
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
EXECUTIVE SUMMARY Investment Activity in 2022
36
years. The median size of investment in 2022 was $82,500, marginally lower than in 2021 ($85,000) and much low- er than in earlier years. The mean size of investment in 2022 was also lower than in 2021 ($220,275 compared with $385,483). The proportion of follow-on investments was higher in 2022 than in 2021, ac- counting for 32% of investments com- pared with 26% in 2021. However, this was still below the level in previous years. Follow-on investment as a share of the total amount invested was also higher in 2022 than in 2021, accounting for 36% of the amount invested, compared with 21% in 2021.
Funding Success Funnel FIGURE C
100% (7,982)
Application
20% (1,584)
Presentation
Due Dilligence
8% (632)
7% (554)
Funded
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
EXECUTIVE SUMMARY Investment Activity in 2022
37
The two most commonly used investment instru- ments are preferred shares (48%) and convertible de- bentures (43%). The third most commonly used instru- ment, SAFEs, were used in 6% of investments. Debt instruments are uncommon, used in just 1% of cases. The proportion of deals using preferred shares has in- creased significantly in recent years. The increase in the use of SAFEs, up from 7% in 2020 to 16% in 2021, was reversed in 2022. An ongoing decline in the use of com- mon shares — as a result of increased use of preferred shares and SAFEs — has accelerated. Common shares were used 14% of the time in 2021, but just 2% of the time in 2022. The median valuation in 2022 was $4.5 million which is lower than in both 2021 ($5 million) and 2020 ($6 mil- lion). However, there is considerable variation in valua- tions: 38% of investments were valued at $4 million or
less (with 21% valued at $2 million or less), with 54% val- ued at $6 million or less, while just over one-third (35%) of investments were made at valuations of $10 million or above. In comparison with 2021, in 2022 there was both a higher proportion of investments at $4 million or less and at $10 million and above, and fewer in the $4 million to $10 million range. Angel investors invest in a wide range of sectors of the economy. The dominance of the Information and Communication Technologies (ICT) sector continued in 2022, accounting for 39% of investments and 40% of the amount invested. HealthTech (which was not identi- fied as a separate sector in previous years) was the sec- ond biggest sector, comprising 14% of investments and 12% of the amount invested, followed by Services (12% of investments, 9% of the amount invested). ICT’s share of investments was higher than in both 2020 and 2021
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
EXECUTIVE SUMMARY Investment Activity in 2022
38
but accounts for a significantly lower proportion than in earlier years when it accounted for close to half of all in- vestments. This reflects the identifi- cation of separate industries in recent years (such as HealthTech in 2022 and CleanTech in 2021) which were previ- ously included in ICT. ICT’s share of the amount invested has been stable over the past three years at around 40%. Life Sciences share of investments — which increased sharply from 2019 to 2020, when the opportunities creat- ed by COVID-19 boosted investment activity in the sector — fell back to pre-COVID levels. The CleanTech and Energy sectors continue to account for a relatively small proportion of to-
Use of Investment Instruments FIGURE D
Preferred Shares 47.9%
Convertible Debt 43.0%
SAFE Notes 5.8%
Common Shares 1.7%
Revenue Based Financing 0.8%
Debt 0.8%
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
EXECUTIVE SUMMARY Investment Activity in 2022
39
Angel investment activity continues to be distributed unevenly across Canada. Central Canada (Ontario and Quebec) accounted for 78% of the total amount invested in 2022, with the West accounting for 18% of the amount invested and Atlantic Canada accounting for 4%. Central Canada also dominates in the share of investments, but not to the same extent, accounting for 59% of invest- ments in 2022 compared with 37% in Western Canada, and 3% in Atlantic Canada. The mean size of investment in Central Canada in 2022 was $285,161 compared with $220,274 for Canada as a whole. However, as was the case in 2021, Atlantic Canada had the highest mean size of investment in 2022 ($294,274). Western Canada’s mean size of investment was much lower ($80,760). In both Atlantic Canada and Western Canada new invest- ments dominate, accounting for 94% and 82% respec- tively of the amounts invested. Follow-on investments were much more common in Central Canada account- ing for 39% of the amount invested compared with 61%
tal investments. Angel organizations predominantly in- vest in small businesses with growth potential, mostly those with one to four or five to nine employees at the time of the investment, accounting for 49% and 22% re- spectively of investments in 2022. This concentration of investments in small companies is consistent over time. However, some angel investments are in larger companies (with over 25 employees) (13%). Investments in larger businesses are more likely to be follow-on in- vestments. However, this distinction was not as great in 2022 as in previous years. Over half (54%) of all new investments were in businesses with 1-4 employees and 71% had between one and nine employees, with rela- tively new investments in businesses with more than 20 employees (15%). Half of all follow-on investments were in businesses with five to nine employees com- pared with 21% in businesses with one to four employ- ees. However, just 7% of follow-on investments were in businesses with more than 20 employees.
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
EXECUTIVE SUMMARY Investment Activity in 2022
40
in new investments. Western Can- ada has the highest level of invest- ment activity based on the number of investments when calculated on a per-capita basis. However, Central Canada dominates when the amount invested is calculated on a per capita basis, reflecting its much larger size of investments. Canada hosts seven Regional Devel- opment Agencies (RDA) that are fed- eral government agencies respon- sible for addressing key economic challenges and furthering economic development, diversification, and job creation within their respective provinces or territories. Analysis by RDA region provides a more detailed
ICT 39.0%
Increase in HealthTech and CleanTech Investments FIGURE E
HealthTech 14.4%
Services 12.4%
Manufacturing 7.8%
Others 7.7%
Life Sciences 7.1%
CleanTech 5.6%
AgTech 3.5%
Energy 1.8%
Aerospace 0.5%
Nanotechnology 0.2%
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
EXECUTIVE SUMMARY Investment Activity in 2022
41
Prairies have the smallest share of dollars invested (3.7% and 2.6% respectively). In contrast to 2021, the Northern Territories did not record any investment in 2022. How- ever, Northern Ontario dominates on a per capita basis and has done so every year (2019-2022). In 2022 its per capita dollar investment was nine times higher than that of Southern Ontario which has the second-highest per capita amount invested. For the past three years, in the absence of data from the Northern Territories, the Prai- ries region has had the lowest amount invested on a per capita basis.
geographical breakdown of angel investment activity in Canada. Central Canada is divided into three RDA re- gions: Northern Ontario, Southern Ontario and Quebec. Western Canada is divided into British Columbia (BC) and the Prairies regions (AB, SK and MB). The North- ern Territories (YT, NT and NU) are represented as one RDA region. Atlantic Canada (NB, PE, NS, and NL) is also represented as one RDA region. Southern Ontario dominates in terms of the amount in- vested, accounting for 47.8% of the total in 2022. Over the period 2019-2022, Southern Ontario has been in first or second position in terms of its share of dollars invested. British Columbia (15.6%) saw the largest in- crease in proportion of amount invested this year and is now in second position. Northern Ontario (15.3%) is in third position in 2022, followed by Quebec (15.0%) which, in two of the past four years, claimed the larg- est share of investment dollars. Atlantic region and the
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
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