fail to secure funding from investors due to elevated levels of risk aversion. This has implications for angels whose investee businesses raise follow-on finance from venture capital funds. It is likely that these investments will take the form of down- rounds which will see a decline in their value, raising the possibility of a re-run of the post-2000 dotcom crash in which many angels saw their investments wiped out by the perceived predatory behaviour of venture capitalists, driving many of them out of the market. Third, there are expected to be fewer opportunities for liquidity events, and those which do occur will be at a lower valuation. This will limit the scale of en- trepreneurial recycling: there will be fewer cashed- out entrepreneurs who become angel investors and the amount they have to invest will be reduced, and angel investors will have fewer and smaller exits which will reduce the capital they have available to re-invest. Fourth, although some angel groups have an- nounced that they are continuing to make new investments the likelihood is that most angels will
seek to preserve their capital to support their ex- isting investee companies rather than making new investments. And finally, the significant uncertainty in financial markets will have a negative impact on the net- worth of many active and potential angel investors. This might be expected to reduce the amount of discretionary capital that they have available to be allocated to angel investing. Angels will continue to invest. However, it is likely that much of their investment will be to support their existing investee businesses rather than in making new investments. And although some angels will continue to consider new investment opportunities, it is likely that there will be less angel investment available at the start of the entrepreneurial pipeline. This would mean increased pressure on startups to get finance, a significant slowdown in the number of startups and scale-ups over for the next 5 years, and a negative impact on Canada’s economic growth.
7 OECD Outlook. The world economy on a tightrope. June 2020. https://www.oecd.org/economic-outlook/ 8 https://www.oecd-ilibrary.org/sites/0d1d1e2e-en/1/3/3/7/index.html?itemId=/content/publication/0d1d1e2e-en&_csp_=b- faa0426ac4b641531f10226ccc9a886&itemIGO=oecd&itemContentType= 9 These are developed in more detail in Mason, C (2020) The Coronavirus Economic Crisis: Its Impact on Venture Capital and High Growth Enterprises, European Union Joint Research Centre JRC120612. http://publications.jrc.ec.europa.eu/repository/handle/ JRC120612
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ANNUAL REPORT ON ANGEL INVESTING IN CANADA
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