Published November 2020
AN ACTION PLAN TO SUPPORT ENTREPRENEURS IN CANADA’S EMERGING ECOSYSTEMS Mobilizing Angel Activity in Yukon
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ANNUAL REPORT ON ANGEL INVESTING IN CANADA
ABOUT NACO Incorporated in 2002, NACO has pioneered angel investing in Canada, including the formation of AngelGroupsand thedevelopment of best practices, intelligence, tools, and educational resources to unlock early-stage capital for entrepreneurs. Since 2010, NACO members have invested over $1.016 billion into early-stage ventures, creating thousands of jobs and supporting community development. NACO members assist Canadian entrepreneurs in every region and industry to execute their vision and commercialize their ideas with angel investor funding. ACKNOWLEDGEMENTS We wish to acknowledge the important contributions of Pieter Dorsman at Angel Forum and E-Fund; Mary Long-Irwin at Northern Ontario Angels; and Suzanne Sterling at Cultural Overtures. With special thanks to all who contributed their thoughts and ideas to this project through the local consultation process and to our Report Review Panel members Chris Lane at Northmark Ventures; William Lechuga at Yukonstruct; Lauren Manekin Beille at Yukon University; and Jason Rayner at Government of Yukon.
With special thanks to :
Preface
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MOBILIZING ANGEL ACTIVITY IN YUKON
PREFACE
that entrepreneurs need to grow and succeed, specifically in times of uncertainty. By developing an engaged and active angel investor community, we can equip Yukon entrepreneurs with the resources they need to thrive, positioning the territory for future prosperity and economic success. Dedicated and ongoing efforts will be needed to ensure that this community continues to grow and thrive. Entrepreneurs are the job creation engines of our local communities, bringing diversity to our economy, creating new solutions and commercializing big ideas. NACO is committed to supporting the development of a domestic supply chain of capital to fuel the growth and scale of Canada’s entrepreneurs. TOTAL This report brings together the insights and knowledge of stakeholders from across the innovation ecosystem with key action items outlined, providing a foundation to build upon. We are confident that Yukon is ready for a coordinated angel community and look forward to supporting this important work.
This report is being published at a time when Canada’s economy is under extreme pressure due to the impacts of the COVID-19 pandemic. Early- stage entrepreneurs are particularly vulnerable in times of economic uncertainty as they often take on more risk and may not have a well-established customer base when compared to more mature companies. In addition, the majority of funding options are not easily accessible to early-stage companies, particularly those that are pre-revenue. As the primary source of funding for early-stage entrepreneurs, angel investorswill play a critical role in supporting our economic recovery by ensuring that these entrepreneurs receive the support they need to create jobs in our communities and maintain momentum in our innovation ecosystem. Angel investors have not been spared the impact of the pandemic and early data collected by NACO supports the concern that financial constraints and market uncertainty may lead angel investors to make more conservative investment decisions or opt-out of the ecosystem completely. For example, 86% of NACO survey respondents expect that entrepreneurs will experience significant obstacles accessing capital over the next 18 months and more than half of the survey respondents reported an intention to decrease their total amount of funds invested in entrepreneurs. Among them, 67% intend to invest 26%-75% less than usual. Worse still, 10% of respondents report no intention to make new investments for the rest of the year. Although Canada’s northern communities have benefited from relatively low COVID-19 case numbers, instability of global markets and uncertainties may impact efforts to develop an angel investor community in Yukon. However, this challenge comes at a time when the importance of angel investors is more critical than ever before. Angel investors provide more than capital - they provide the network connections and mentorship 2010-2019 CUMULATIVE INVESTMENT
Sandi Gilbert Chair, NACO Board of Directors
Claudio Rojas CEO, NACO
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MOBILIZING ANGEL ACTIVITY IN YUKON
Table of Contents
Executive Summary Preface Project Background Executive Summary
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11 15 17 20 24 30 40 42
Introduction
The Impact of Angel Investors
Ecosystem Overview
Key Community Stakeholders
Action Plan Conclusion Resources
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MOBILIZING ANGEL ACTIVITY IN YUKON
Project Background
Mobilizing Angel Activity in Yukon: An action plan to support entrepreneurs in Canada’s emerging ecosystems summarizes the work completed since 2017 with respect to the creation of an angel investor community in Yukon. This report shares detailed recommendations to activate angel investment – however, adapting, adjusting, and modifying the recommendations during implementation is strongly encouraged. It is important that early-stage investment activities in Yukon is attuned to the unique characteristics of the territory’s emerging innovation ecosystem.
During the course of this project, three community engagement sessions were held, bringing together key stakeholders to discuss the development of an early-stage investment ecosystem in Yukon, share best practices and participate in educational workshops. The outputs of these sessions combined with third party research and the expertise of the National Angel Capital Organization provided the foundation for this report.
Three themes emerged during the community engagement sessions:
Theme One
Theme Two
Theme Three
Quality of life and connection to the land are of primary importance; and
Yukon in the future is diversified and self- sustaining (less reliance on mining, more tech, and entrepreneurship); and
Everyone is involved in achieving the goals-all levels of government, instituations, individuals.
Community values and economic opportunity are linked.
Youth are more engaged in determining their own path
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Community Engagement Conclusions:
Cultural Considerations
Throughout the community consultation and research process, the need for culturally-relevant approaches with respect to an angel investor community in Yukon was clear. Recognizing and respecting the cultural influences in angel-funded businesses can result in a stronger relationship between an entrepreneur and an investor. Without cultural understanding, the investor- entrepreneur relationship may experience unnecessary challenges. In turn, those challenges risk translating into a business that struggles to get off the ground. In contrast, where those cultural influences are optimized, this can contribute to the sustainable development of highly successful businesses. Ideally, both Yukon-based and external-based leadership will embrace and champion both needs and cultural considerations specific to Yukon. This leadership role will be critical not only within Yukon and across Canada, but also where similar needs and cultural considerations are prevalent internationally.
Local interest and support are strong for the development of a Yukon-based early-stage investment network, among ecosystem partners including companies, individuals, and government. There is an opportunity for the community to take the lead in organizing investor development, and contributing to the development of investor-ready entrepreneurs; and Development, operational, and financial support will be needed from various levels of government to establish a thriving Angel Group and complementary Angel Fund.
The need for an organized, collaborative, and robust community of Yukon investors is clear:
Investor identification, support, and involvement are needed to enable investment into local entrepreneurs or companies; Providing support to Yukon investors through the sharing of Canadian best practices, education, and experience of
veteran investors will help in the development of Yukon specific approaches; and;
In order to support sustainable local growth and minimize the risk of local market failure, it is important to connect Yukon-based companies and investors with peers in other regions and broader opportunities across the national landscape.
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Executive Summary
Angels are community-based investors that take a “leap of faith” on entrepreneurs before institutional investors, such as venture capital funds. Angel investors fuel the “scale-up” pipeline that flows into the venture capital industry by putting capital-at-risk in local communities. As the main source of early-stage capital for Canada’s entrepreneurs, angel investors play a vital role in the development of local entrepreneurial ecosystems by providing funding, mentorship, and access to client networks. Over the past ten years, NACO’s angel investor members have invested over $1 billion into Canadian companies. At the writing of this report, there were no formal Angel Groups or NACO members in Yukon. We know that the Yukon angel investment ecosystem is currently fragmented and unstructured, and that early- stage companies often go unfunded, remain under-capitalized and never reach their full potential. Creating a strong and impactful angel investor community in Yukon will require participation from across several key stakeholder groups, including both the private and public sectors. A diverse and active angel investor community can stimulate economic development through increased private investment capital into early-stage Yukon companies to help them start, scale, and thrive. On thesupply side, improving theflowof investment capital, investment education, and management expertise into high-potential companies will increase both the number of investors that are empowered to invest in Yukon entrepreneurs, and also the amount of capital available for investment. On the demand side, the focus is on those who want to start and grow businesses that create prosperity and improve lives in their communities. Optimizing the balance between supply of investment capital and demand for investment into entrepreneurial companies is critical.
EXECUTIVE SUMMARY
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As a first step, it is recommended that an Angel Community Lead be identified and activated to focus on this critical up- front work, thereby contributing to the development of a strategy to achieve the following project goals.
Inanemergingecosystemsuchas Yukon, where the angel investment community is unstructured and underdeveloped, much foundational work will need to be undertaken before formally structured Angel Funds or Angel Groups can be launched.
Project Goals:
Engage
Identify and engage active and potential angel investors
Educate
Provide training to active and potential angel investors and local entrepreneurs, increasing general awareness of angel investing
Connect
Create forums (both in-person and online) to bridge connections between angel investors, entrepreneurs and key ecosystem stakeholders
Activate
Curate investment opportunities and facilitate investor meetings
Expand
Coordinate dealflow with investors from outside Yukon
Formalize
If dealflow and engagement in Yukon is strong, create a formal Angel Group and/or fund and explore mechanisms to amplify the impact of angel investment
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This report explores these goals in further detail and should serve as a reference guide to inform the foundational work associated with developing a robust angel investment community in Yukon. Inorder toensure that a local communityof angel investors cancontinue to grow and make a meaningful impact for Yukon entrepreneurs, we recommend that ongoing efforts are focused on entrepreneur and investor education, in addition to creating opportunities for company promotion, engagement and connectivity. Ongoing efforts will be required to coordinate the community of local investors with those from outside the territory to network, learn and access a broader array of investment opportunities. As investment activity increases in the region, so will momentum for the innovation ecosystem, attracting new outside investors and opportunities. Entrepreneurs are the job creation engines of our local communities and NACO remains committed to supporting the angel community development process, which will energize sustainable economic growth and inclusive prosperity in Yukon and beyond.
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Introduction
Angel investors are a critical component of any successful innovation ecosystem. They provide the early-stage funding, connections, and mentorship that entrepreneurs need to scale their operations, expand to new markets, and secure future investments from venture capital and financial institutions. Yukon has made significant progress towards the development of a strong innovation ecosystem by creating spaces and programming to support entrepreneurs across a variety of sectors. A natural progression of this work is the formation of a coordinated network of early-stage investors to support Yukon entrepreneurs. According to a report released in 2017, The Yukon Angel investment market is currently fragmented and not well-organized (1). There is a need for early-stage capital (2). Early-stage opportunities in Yukon often go unfunded, remain under-capitalized, and never reach their full potential. The majority of local early-stage entrepreneurship funding comes from government programs and financing opportunities offered by däna Näye Ventures and some additional funding opportunities are available to Indigenous entrepreneurs in the territory. Currently, there are no formal Angel Groups or NACO members in the territory. To ensure that Yukon entrepreneurs have access to the capital they need to realize their full potential, we must focus on activating and mobilizing local angel investors — which in turn will attract capital from outside the region to amplify the growth opportunities available to Yukon- based entrepreneurs. As a first step in this report’s evaluation process, NACO held several events in the territory, consulting with local leaders and entrepreneurs, providing education, and facilitating connections to angel investors from across the country. The outputs of these sessions, combined with NACO’s 20 years of expertise and knowledge have resulted in this report, which outlines an action plan for the development of a vibrant angel community in Yukon.
(1) Kassun-Mutch, P. and Fox, V. (2017). Yukon Project Assessment The Hub. The Pivotal Point. (2) Northmark Ventures (2018).Funding Yukon Innovation A Yukon-based Funding Concept for Technology Investors and Entrepreneurs.
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The Impact Of Angel Investors
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Excerpt from NACO (2020) A Decade of Deals: Annual Report on Angel Investing in Canada (3) Angel investors are a key driver in the entrepreneurial ecosystem, investing at the start of the entrepreneurial pipeline in new and emerging companies. Alongside their capital, angel investors draw upon their experience as entrepreneurs, business managers, and business professionals to contribute their knowledge and expertise, networks, and psychological and emotional support to their investee businesses. Angel investors help to build client relationships, leveraging their established business networks, all of which contribute to the ability of entrepreneurs to more rapidly scale their operations. Indeed, this non-financial support can be as significant as the capital they invest. Angel investors are the main source of seed-stage capital, investing relatively small amounts in companies at their start-up and early growth stages. As such, they play a complementary role to that of the venture capital industry. This has two dimensions. First, angel investors are often the first investors in businesses that go on to raise larger amounts from venture capital funds and participate in innovation and commercialization programs to scale-up their operations. By unlocking angel capital, which is local, community-based capital, entrepreneurs in all communities, from all backgrounds, can create the companies and jobs of the future, thereby creating sustainable growth in their local communities. This year, NACO released its 10th annual report on angel activity in Canada. By highlighting both the investment activity and year-on- year investment trends, this report provides unique insights into angel investing trends in Canada. This evidence-based analysis emphasizes the importance of angel investing in Canada’s innovation economy.
(3) NACO (2020) A Decade of Deals: Annual Report on Angel Investing in Canada. https://builtbyangels.com
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Key Findings:
After ten years of tracking investment data, NACO members have surpassed the $1 billion threshold.
Angel Groups made 299 investments in 2019, investing a total of $163.9 million – a new record level of investment. This is the highest annual amount invested, up 14.8% on the 2018 figure, and exceeded the previous record in 2017. However, the number of investments was significantly lower than in the previous three years. This reflects a significant increase in the mean size of investment, but a decline in the median size of investment compared to the previous two years. Women comprised just 17% of the members of Canadian Angel Groups in 2019. This is consistent with 2018 data, which showed an increase from 14% the year prior. Angel Groups predominantly invest in small businesses with growth potential, mostly those with 1–5 or 6–10 employees at the time of the investment, accounting for 42% and18% respectively of investments in 2019. Angel investment activity continues to be distributed unevenly across Canada. Central Canada (Ontario and Quebec) accounted for 86% of investments compared with 13% in Western Canada and 1% in Atlantic Canada.
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Ecosystem Overview
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Provinces in Canada are home to Angel Groups and Angel Funds as well as a number of individual investors who are not affiliated with a formal Angel Group or Angel Fund, but connect into the angel ecosystem through NACO membership and relationships with local incubators and accelerators. As of the writing of this report, there were no formalized Angel Groups within the territories (Yukon, Northwest Territories, and Nunavut). Interviews with government officials in each of the territories provided insights into the small -and medium-sized business environment and readiness for establishing an Angel Group and/or Fund. Based on the environment, networks, and systems, Yukon was identified as the first location for the development of early-stage angel investing. Yukon business leaders, entrepreneurs, and residents have taken a leadership role to explore the development of angel investment approaches that will work for them. This phenomenal work to date has the support to face the challenges head-on. As an emerging, micro-ecosystem, Yukon is well positioned to start by coordinating a community of angel investors and moving towards a structured group model such as the one developed by the Northern Ontario Angels, North America’s most successful Angel Group. A Case Study of Northern Ontario Angels is included in the resources section of this report. The wisdom gained during the process of developing early- stage investment in Yukon will serve as a guide to other territories and similar locations around the world. Yukon’s cultural, economic, demographic, and geographic environments are unlike any other in Canada where Angel Groups and Funds currently exist. A review of community reports, assessments, and guides identified existing ecosystem partners, considerations, advice, challenges, and gaps needing to be addressed.
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Main resources reviewed to understand the Yukon ecosystem included:
Yukon Project Assessment The Hub completed by the team at the Pivotal Point (2017);
Funding Yukon Innovation, A Yukon-based Funding Concept for Technology Investors and Entrepreneurs, prepared by Northmark Ventures (2018).
In 2017, Yukonstruct, a Yukon-based innovation hub and makerspace, contracted The Pivotal Point (authored by Petra Kassun-Mutch and Valerie Fox) to complete an assessment of the City of Whitehorse entrepreneurship ecosystem. The report, Yukon Project Assessment The Hub, included a graphic referred to as the Helicopter View. Figure 1 documents the existing linkages, relationships, and infrastructure within the City of Whitehorse.
Figure 1: Helicopter View: Whitehorse Innovation and Entrepreneurship Ecosystem Visual Map Based on Mentions in Interviews. (4)
Venture Capital
Associations/ Clubs
Co(Space)
Hub Leadership Group
Yukonstruct Maker Lab
Potential Partners
(4) Kassun-Mutch, P. and Fox, V. (2017). Yukon Project Assessment The Hub. The Pivotal Point.
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Funding Yukon Innovation, A Yukon-based Funding Concept for Technology Investors and Entrepreneurs was prepared by Northmark Ventures in January 2018. Figure 2 recognizes early-stage ecosystem progress in both community and education and identifies the critical missing component as capital. An Angel Group and/or Fund would increase access to capital for qualifying, investment-ready, entrepreneurs.
The Yukon Entrepreneurial Technology
Figure 2: The Yukon Entrepreneurial Technology Journey, (5)
Where are we?
Community - Yukonstruct/(co)space is fully operating - Innovation Hub being planned
Education - One cohort of Tech Bootcamp graduates produced - Young Technologists internships available annually - Startup Checkpoint program in its third year and expanding Capital - Several territorial and federal grant programs applied ad-hoc - No real solution in place for technology investors and entrepreneurs
Findings in each of the reports support the development of an angel investor community in Yukon. The Whitehorse community has identified the need for increased access to education, mentorship, and capital within the entrepreneurial ecosystem. Increasing economic development in Yukon through establishing a coordinated angel investor community serves as direct recognition and response to the need expressed in the community.
In turn, a successful angel investor community could enhance the priorities of economic development held by all levels of governments.
(5) Northmark Ventures (2018). Funding Yukon Innovation A Yukon-based Funding Concept for Technology Investors and Entrepreneurs.
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Key Community Stakeholders
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Creating a strong and impactful angel community in Yukon will require participation from across several key community stakeholder groups. Coordination between these stakeholders will increase project success and sustainability. Yukon Innovation Centres - Incubators, Accelerators and Post- Secondary Institutions Across Canada, accelerators, incubators, innovation clusters, universities, and colleges contribute a significant portion of the deal flow required by angel investors - connecting emerging entrepreneurs with investors for mentorship, networking and capital. Companies associated with entrepreneurship programs are often seen as a less risky investment as they have received formal training, support, and have often completed a rigorous application process.
Areas of Opportunity:
Collaborate with NACO to deliver training, mentorship, and education to entrepreneurs, ensuring that they are “investor-ready”.
Facilitate introductions between high-potential entrepreneurs and angel investors.
Harness the expertise and network connections of angel investors by including them in mentorship and
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Yukon First Nations Yukon First Nations have an integral role to play in support of Yukon entrepreneurs, including in the development of an angel investment community. In a Government of Yukon news release of February 15, 2019, Minister of Economic Development Ranj Pillai is quoted saying “our government believes First Nations and their development corporations are key to the success of advancing economic development in Yukon”. (6)
Areas of Opportunity:
Advise the angel community leadership with respect to bridging the cultural gap between Western business models and traditional, culturally relative approaches.
Participate in the angel community as investors
Promote angel investment educational programs to Indigenous entrepreneurs and help to identify investment opportunities
(6) Government of Yukon (2019). Government of Yukon supports successful Indigenous economic development conference. Retrieved on April 22, 2019 from https://yukon.ca/en/news/government- yukon-supports-successful-indigenous-economic-development-conference
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Federal Government - Canadian Northern Economic Development Agency (CanNor) The federal government and Regional Development Agencies (RDA’s) can be a significant catalyst in the development of a strong angel investor community. Regional economic development in Yukon is led by the Canadian Northern Economic Development Agency (CanNor) – “CanNor fosters growth and development in the North by delivering economic development programs and by collaborating with and aligning the efforts of partners in northern and southern Canada to respond to economic challenges and opportunities in the North.” (7)
Areas of Opportunity:
Financially support the development of an angel investor community, Angel Group, and Angel Fund over five years as part of the Pan-Territorial Growth Strategy in collaboration with other levels of government. Explore the opportunity to create a co-investment or “matching funds” initiative to encourage angel investment and increase impact for entrepreneurs. Ensure collaboration between investors in the northern territories and other parts of Canada by engaging with NACO to support development on an ongoing basis.
Ensure new and existing programs and systems are complementary to those offered by other levels of government.
(7) Government of Canada 2018. CanNor: What We Do. Retrieved on August 28, 2020 from https://www.cannor.gc.ca/eng/1381320711612/1381320727939
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Territorial Government - Government of Yukon
Provincial and Territorial governments are a key source of funding for entrepreneurs and entrepreneurship programming across Canada. This includes supporting an active angel investment ecosystem that contributes to local economies, facilitating job creation and prosperity. An active angel investment environment could contribute significantly to the support of economic diversification in the knowledge and technology sector.
Areas of Opportunity:
Financially support the establishment and operations of an angel community as part of the plan to achieve economic growth, diversification, and innovation.
Ensure new and existing programs and systems are complementary to those offered by other levels of government.
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Municipal Government - City of Whitehorse
As the largest population base in Yukon, the City of Whitehorse has an opportunity to assist in the development and support of an angel investment ecosystem in a number of ways. Engaging in this process will have direct economic growth and diversification impact for the City and angel-funded business development within the city.
Areas of Opportunity:
Financially support the development of an angel community in Whitehorse.
Consider the impact andpossible supports for thedevelopment of angel investment within the Whitehorse 2040 planning process. Ensure new and existing programs and systems are complementary to those offered by other levels of government.
Create connections with local business and community leaders
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Action Plan
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Where are we now? At the writing of this report, there were no formal Angel Groups or NACO members in Yukon. We know that the Yukon angel investment ecosystem is currently fragmented and not-well organized and that early-stage companies often go unfunded, remain under-capitalized and never reach their full potential. Where are we heading? We envision a future where all entrepreneurs across Yukon are able to access the capital and mentorship they need to launch and grow their companies, creating jobs and economic prosperity. A diverse and active angel community can stimulate economic development through increased private investment capital into early- stage Yukon companies to help them start, scale, and succeed. On thesupply side, improving theflowof investment capital, investment education, and management expertise into high-growth-potential companies will increase both the number of investors empowered to invest in Yukon entrepreneurs, in addition to the amount of capital available for investment. On the demand side, the focus is on those who want to start and grow businesses that create prosperity and improve lives in their communities.
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Howwill we get there? In an emerging ecosystem such as Yukon, where the angel investment community is unstructured and underdeveloped, much foundational work will need to be undertaken before formally structured Angel Funds or Angel Groups can be launched. As a first step, it is recommended that an Angel Community Lead be identified and activated to focus on this critical up-front work, thereby contributing to the development of a strategy to achieve the following project goals. This role should be initiated locally with national support from NACO and key stakeholders.
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Project Goals:
Engage
Identify and engage active and potential angel investors
Educate
Provide training to active and potential angel investors and local entrepreneurs, increasing general awareness of angel investing
Connect
Create forums (both in-person and online) to bridge connections between angel investors, entrepreneurs and key ecosystem stakeholders
Activate
Curate investment opportunities and facilitate investor meetings
Expand
Coordinate dealflow with investors from outside Yukon
Formalize
If dealflow and engagement in Yukon is strong, create a formal Angel Group and/or fund and explore mechanisms to amplify the impact of angel investment
These goals are explored in more detail in the following pages. However, more work is required to identify measurable targets, timelines and resources for this project.
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Engage
As a first step towards developing a vibrant angel community in Yukon, the identified Angel Community Lead will focus their efforts on engaging with active and potential investors. As new angel investors are identified, they will have the opportunity to register as NACO members to connect with other angel investors and to access educational support, resources, peer mentoring and deal flow from across Canada. Regular local programming to provide education and networking can serve to further connect this group and introduce new potential investors to the opportunity. Depending on the geographic distribution of the investors, it may be necessary to utilize a technology platform to deliver virtual programming and present investment opportunities in a more accessible format. NACO is committed to activating angel activity in Yukon and can provide support and resources for the foundational work related to developing a community of angel investors, particularly in advance of formal Angel Group or Fund development. Leveraging national and international best practices, research, and insights, NACO can provide guidance as well as administrative support to fuel the growth of this community. Specifically, the organization can provide angel investor education, deal management, due diligence support, along with national connectivity and dealflow. These support mechanisms will ensure that overhead and administrative burden remain low, allowing the identified Angel Community Lead to focus their efforts on community management.
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Key Areas Of Responsibility For The Angel Community Lead:
Increase the awareness of angel investing to introduce the concept and identify potential investors, champions, and partners
Support the development of a brand identity for these angel activity initiatives (i.e. Yukon Angels) and establish a presence across online and in-person channels Recruit new angel investors and connect them to NACO resources to ensure that they have a strong understanding of the asset class and can improve the outcomes of their investments. Launch regular programming for local angel investors focused on building knowledge, creating support networks, and providing an opportunity to connect potential investors with active angels. Support the development of ‘investor-ready’ entrepreneurs, leveraging the NACO Investor Readiness Program to address knowledge gaps and increase the success potential of investment opportunities. Coordinate with investors from outside the region to complement local investment activity and inject vital resources into the ecosystem as local capacity builds.
Utilize support from NACO to manage investments and due diligence in a cost-effective and centralized manner.
Engage with sponsors to support programming and increase the visibility of angel activity.
Track year-over-year investment metrics and activity.
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Educate
As angel investing is new to Yukon, there are several audiences that will benefit from access to angel investment education, including new and experienced angel investors, entrepreneurs and the general public. NACO offers a number of resources to support education related to angel investing. It is recommended that adjustments are made to these resources to address the cultural environment of Yukon and facilitate widespread adoption.
Angel Education
With support from industry partners and experts, NACO provides education to new and established angel investors through the NACO Academy platform. Live educational modules cover the basics of angel investing as well as more specialized topics for experienced angels and non-investors who work with angel investors. Additional online modules are under development to provide on-demand access to angel investor training.
Entrepreneur Education
Working in partnership with Ryerson University, NACO recently launched the Investor Readiness Program to provide entrepreneurs with the knowledge they need to become investor-ready. Developed with feedback from accelerator and incubator partners, in addition to perspectives from angel investors and entrepreneurs, this curriculum provides a fulsome overview of the dynamics and details of angel investing. This is delivered in an in- person or virtual classroom setting, with the impact of this curriculum amplified by intensive one-on-one mentorship sessions between entrepreneurs and active angel investors.
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The need for entrepreneurial access to mentors and capital in Yukon was made evident through the community consultation process for this project with entrepreneurs sharing the following questions:
What is an angel investor?
What is angel investment?
What is the difference between an Angel Group and an Angel Fund?
Where do I start to access angel investment?
How do I mitigate risk?
How do I deal with the uncertainty of being an entrepreneur?
Questions regarding how to engage in negotiations
Concerns about term sheets and how agreements are made
Should we incorporate and is it costly?
What is the role of incubators and accelerators within an angel investment ecosystem?
In order to address knowledge gaps and increase the success potential of investment opportunities, it is recommended that local innovation centres work with NACO to introduce the Investor Readiness Program with an initial three-month pilot. General Education and Awareness Angel investment is new to Yukon. Increasing awareness of angel investing and providing education to the general public will help to attract potential investors, partners, and champions. It is recommended that this campaign take a broad-based, multi-pronged approach to establish a basic understanding of angel investment initiatives in Yukon. This approach should be balanced across as many sectors, communities, and groups as possible and include a “call to action” for people to learn more. Campaign initiatives should promote the importance of angel investing and focus on the community impact and potential. NACO may be engaged to provide ongoing support in the early development of these initiatives with local investors. Opportunities for a general education and awareness campaign include utilizing media outlets to build awareness of angel investing and leveraging social media, radio interviews, and email blasts to increase public interest and knowledge about angel investment, across Yukon.
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Connect Connectivity is a key component of any successful innovation ecosystem. As early-stage investment networks develop in Yukon alongside the entrepreneurship community, we must focus on increasing connectivity between local investors and those from outside the territory to provide capital and guidance. Also critical in this process is ensuring that adequate investment portfolio diversification for Yukon angel investors is attained, both within and beyond the local environment. This will ensure the sustainability of the investor base, as broad diversification provides investment return stability. Key stakeholders can leverage the NACO Network to establish and maintain these connections between investors, which in turn connects Yukon entrepreneurs to prominent Angel Groups and seed-stage funds across Canada. The NACO Network is a unique community of Canadian angels, Angel Groups, Angel Funds, venture capitalists, incubators & accelerators, community members and entrepreneurs. Yukon angel investors, entrepreneurs and innovation leaders can access this resource to network, share best practices, syndicate on deals, and collaborate.
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Looking Beyong Borders
NACO’s most recent Annual Report on Angel Investing in Canada notes that angel investment continues to be a largely local and regional activity. In 2019, 14% of investments were in the same city as the Angel Group was based and 52% were in the same province. However, a comparison against the data from previous years indicates that this trend is shifting with a growing number of investments made across provincial and territorial borders. National connectivity between emerging and established ecosystems remains a source of untapped potential for Canada’s innovation economy. Although historically angels have been inclined to invest close to home, the increased digital activity that occurred in response to the challenges of the COVID-19 pandemic may lead to additional interest in interprovincial and interterritorial investing. (8) In order to achieve sustainable returns on investment, angel investors should aim to have a diversified portfolio. This may be challenging if Yukon angel investors are focused solely on Yukon companies as the innovation ecosystem is in a phase of development. As both the innovation ecosystem and the angel ecosystem in Yukon develop in parallel, cross border investing can be a powerful support mechanism to drive momentum. Both by providing the opportunity for Yukon angel investors to diversify their portfolios through investments in entrepreneurs from across Canada and by bringing capital and expertise from a national network of angel investors to support Yukon entrepreneurs and create more investor-ready companies.
(8) A Decade of Deals: Annual Report on Angel Investing in Canada, June 2020. https://builtbyangels.com/
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Activate
In year two of the project, the Angel Community lead and key ecosys- tem stakeholders can begin to increase the momentum of the angel community while continuing to focus on the responsibilities outlined in year one. One area of opportunity is the development of a Co-invest- ment or “Matching Funds” initiative to stimulate investment activity, increase investment impact, and attract new investors. In order to en- courage investments in local entrepreneurs and to increase impact, we recommend creating a “matching funds” initiative in Yukon. This commonly used mechanism can be long term or temporary and may be combined with investor tax credits such as the Yukon Small Business Investment Tax Credit for increased impact. Additional in- formation on co-investment initiatives are included in the resources section of this document. Regional or national investment tax credits are also an interesting area of opportunity and provide a mechanism to incentivize investment into the wider early-stage ecosystem, deliv- ering value to Canada’s entrepreneurs and facilitating interprovincial and interterritorial investment for angel investors looking to develop a diversified portfolio.
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MOBILIZING ANGEL ACTIVITY IN YUKON
Formalize
Depending on deal flow volume and based on an evaluation of investment activity metrics, there may come a point at year three of the project or later when the angel investors can be formalized into an Angel Group. This Group may be a standalone entity following the example of Northern Ontario Angels (see Case Study in Resources section) or as a joint venture and/or local chapter of NACO. The latter option allows for more streamlined governance and lower overhead costs. Following the formulation of a formal Angel Group, an Angel Fund can be created to further increase the investment capacity of the region.
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MOBILIZING ANGEL ACTIVITY IN YUKON
Conclusion
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MOBILIZING ANGEL ACTIVITY IN YUKON
Angel investors provide the capital, guidance, andnetwork connections needed to facilitate growth for early-stage companies and create economic prosperity for local communities. By leveraging the experience of Angel Groups and networks such as Northern Ontario Angels and adapting for the needs and values of the Yukon innovation ecosystem, we can mobilize a new community of angel investors to fuel entrepreneurship in the region. The success of this initiative will be dependent on the ability of key ecosystem stakeholders to work together towards a common goal and vision with a continued focus on the needs of local entrepreneurs. The project goals and recommendations outlined in this report should serve as a reference guide to inform the foundational work associated with developing a robust angel investment community in Yukon. An ongoing and iterative approach is recommended to ensure that early- stage investment activities in Yukon, works for Yukon. In order to ensure that a local community of angel investors can continue to grow and make a meaningful impact for Yukon entrepreneurs, we recommend that ongoing efforts are focused on entrepreneur and investor education and on creating opportunities for promotion, engagement and connectivity. Additional efforts will be required to coordinate the community of local investors with those from outside the territory. As investment activity increases in the region, so will momentum for the innovation ecosystem, attracting new outside investors and opportunities. Entrepreneurs are the job creation engines of our local communities and NACO remains committed to supporting the angel community development process, which will energize sustainable economic growth and inclusive prosperity in Yukon and beyond.
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MOBILIZING ANGEL ACTIVITY IN YUKON
Resources
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ANNUAL REPORT ON ANGEL INVESTING IN CANADA
Case Study: Northern Ontario Angels
Canada has an extraordinary success story in Northern Ontario, with the local angel group there mobilizing over $130million in capital in a population of 780,000. We can learn from this success story and replicate it in ecosystems around the country. The following case study examines theapproachand results generated by the Northern Ontario Angels (NOA). Northern Ontario Angels hold the top spot in Canada for the number of investments made and the dollar value of those investments. In May 2019, USA based Angel Capital Association (ACA) 2018 Angel Funders Report named the Northern Ontario Angels as the number one Angel Organization in North America. Based on performance indicators, locations across Canada and around the world want to know how to replicate this underdog success story. Yukon territory was one of the first areas to actively pursue the development of an angel group based on the Northern Ontario model. Simultaneously, Yukon territory is exploring angel fund development and outside investor opportunities. Their efforts provide a road map for others to consider when adapting the NOA model in different geographic regions. Results produced by NOA have attracted interest from countries around the world. Support for both the NOA would not have been possible without the support from various levels of government. Supporting small- and medium- sized enterprises is a key strategy of regional economic development. Success across Canada will
require partnerships “with provincial, territorial and municipal governments and Indigenous partners, communities and governments”(9) . Angel investors, whether individually or as part of a network or fund, deliver real results and have proven their ability to exponentially increase the impact of financial support provided by the government. NOA launched in November 2005 and over the last 15 years, the not for profit corporation has delivered on it’s “goal is to stimulate increased investment capital into Northern Ontario companies to help them succeed…by improving the flow of investment capital, investment education, and management expertise into high-growth potential northern companies”(10). Since its inception, NOA has been instrumental in 344 deals being completed as of March 2020 with 48% in the technology sector. The companies received investments from NOA members valued at over 155 million dollars. The jobs protected in these investments include over 4,000 full-time and part-time jobs.
Northern Ontario Angels 800-1200 applications per year or 200-300 per quarter.
Early attempts to launch an Angel Group in Northern Ontario produced minimal results. Approaches used in densely populated, large urban centres simply did not work in Northern Ontario’s economic, demographic, and geographic setting. Several key changes were made to the “Bay Street” model.
(9) Minister of Economic Development and Official Languages Mandate Letter https://pm.gc.ca/en/mandate-letters/2019/12/13/ minister-economic-development-and-official-languages-mandate-letter (10). Northern Ontario Angels (2020). Organization. Retrieved on April 22, 2019 from http://www.northernontarioangels.ca/en/about/ organization/
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Key Factors
Northern Ontario is about the people, the relationships, their connection to improving the communities they live in and building a place where their children see opportunities and a place to raise their own families;
Networks are key and collaboration is common;
Angel investors demand anonymity and protection of their identity;
Communities are different, each with their own strengths and challenges;
Every investment opportunity is worth consideration especially if there is a potential for it to create well paying, long-term, stable employment opportunities;
People want to join a winning team – Success is attractive;
Risk is personal however knowing no NOA Angel has ever lost their investment, helps;
Knowing the small business development ecosystem in communities, and across a region, is critical when supporting an entrepreneur navigating the ecosystem.
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What factors make it possible for an Angel Group to generate such outstanding results? NOA is positioned in a large, geographically dispersed region,witha lowpopulationdensityandastruggling natural resource sector, yet they continue to outpace groups across North America. Three reports written by Sterling provide insights into NOA’s success and the key factors are explored below.
are not limited to) incubators and accelerators, Regional Innovation Centres, financial institutions, Centres of Excellence, provincial or territorial programs supporting entrepreneur, etc. NOA supports the development of their own deal flow pipeline and the larger ecosystem by referring very early-stage entrepreneurs to resources that are better positioned to help them become investor- ready. Once the entrepreneur is ready to seek investment, NOA and supporting organization(s) may collaborate to provide the most support possible to an entrepreneur. Leveraging or stacking funding can make all the difference to an entrepreneur as they build their business. .
1.
Federal Government Funding:
Government funding (FedNor ) of Network development and administrative support provides stability, which in turn created the foundation of NOA’s success. Initial and subsequent multi-year funding commitments enabled the organization to set and achieve multi-year goals including the recruitment and retention of highly skilled leadership. From 2010 to 2021 (anticipated), the total FedNor contribution in support of NOA is $2,650,080. This investment has resulted in the creation or maintenance of 4,000 jobs in the region.
3.
Engaged Angel Investors:
Investors with NOA meet the Accredited Investor criteria as defined by the Ontario Securities Commission. Investor identity and their involvement with NOA is held in the strictest of confidence. Ongoing recruitment and retention of investors as well as ensuring the investor’s experience is satisfactory, are critical success factors for NOA.
2.
A Coordinated Network Approach:
NOA has developed a strong network of organizations that support new business development. These organizations may include (but
(11). Sterling, S. (2016). Impact of Angel Investment and Factors that Contribute to Success. Northern Ontario Angels. Sterling, S. (2018). Impact of Regional Development Agency Funding on Angel Investment in Canada. National Angel Capital Orga- nization. Sterling, S. (2019). Northern Ontario Angels Stakeholder Satisfaction Report. Northern Ontario Angels. Internal document. (12). FedNor is the Government of Canada’s economic development organization for Northern Ontario. Through its programs and services, and through its financial support of projects that lead to job creation and economic growth, FedNor works with businesses and community partners to build a stronger Northern Ontario (https://fednor.gc.ca/eic/site/fednor-fednor.nsf/eng/home).
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