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The Role of Angel Investors in the Entrepreneurial Ecosystem 1.1
V enture capital is a specialist form of business fi- nance designed to meet the needs of innovative firms, particularly in technology sectors, which are pur- suing significant growth opportunities. The financing needs of innovative startups typically exceed their ca- pability of generating 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. Venture capital fills this fi- nance gap — termed ‘the valley of death’ — with equity finance to enable firms to scale up and become prof- itable, ultimately realising their investment through an exit, typically the acquisition of the business by a larger corporation but occasionally through a stock market listing (an IPO).
Firms utilize various sources of funding at different points in their development. New businesses typical-
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
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