I N T ROD UCT I ON Ange l I nves t i ng du r i ng COV ID-19
60
Angel investors are the main source of seed-stage capital, investing rel- atively small amounts in companies at their startup and early growth stages. As such, they play a com- plementary role to that of the ven- ture capital industry. Angel inves- tors are often the first investors in businesses that go on to raise larger amounts from venture capi- tal funds to finance their scale-up. This funding model has been seen as being analogous to a relay race: “angel investment runs the critical first leg of the relay race, passing the baton to venture capital only after a company has begun to find
its stride. Venture capitalists focus on expansion and later stages of development when their contribu- tion is most effective.” 3 Prominent Canadian entrepreneurial success- es that have followed this funding pattern include Shopify in Ottawa, Solium in Calgary, SkipTheDishes in Saskatoon, Blackberry in Kitch- ener-Waterloo, Verafin in St John’s, and Wealthsimple in Toronto. In oth- er cases, angel-backed startups are acquired by larger companies (typi- cally for $20 million - $30 million or less) that see the strategic potential for exploiting their innovative ca- pabilities. The emergence and ex-
pansion of structured angel activity over the past two decades, includ- ing angel organizations and syndi- cates where individual angels invest together in the same businesses, has created larger pools of capital which in turn create the capacity to make larger initial investments and follow-on investments, filling what has been termed the ‘second equity gap’ ($500,000 - $2 million) – the breakdown of the funding relay race - that has resulted from the shift of venture capital fund to larger and later-stage investments.
3 Benjamin, G. A. and Margulis, J. B. (2000) Angel Financing: How to Find and Invest in Private Equity. Wiley, New York.
Powered by FlippingBook