concern about a lack of new investors and hence new capital. Second, were concerns about the quality of deal flow. As discussed earlier, there was a significant decline in the number of entrepreneurs that graduated to the second stage of the invest- ment process (presenting to the broader angel group membership). One respondent observed that “the volume of deal flow does not translate into high quality deals. This presents a big drain on very limited resources to scan and screen companies.” Another group interpreted this problem as arising from a lack of investment readiness amongst entrepreneurs seeking angel investment.
Group managers were invited to add written comments to elaborate on the scores that they gave and to comment on specific aspects of the investment environment. A variety of issues were raised but with no single theme dominating. Moreover, many of the issues that were raised were particular concerns of specific groups and related to their size and location, particularly those groups that are located outside of the major cities. The most frequently mentioned theme was “inves- tor fatigue” related to the extended length of time for the return of capital, which could be seven to ten years or longer. Some groups raised a broader
THIS GROUP ELABORATED THE PROBLEM AS FOLLOWS:
“The biggest issue now is that despite running educational workshops for entrepreneurs, companies don’t have their data room ready and don’t realize the importance of having that part organized. Also many are naïve about what it takes to get an investor on board and very often abuse the help offered (and expect potential investors to actually take on the work of organizing the data room). We have seen quite a few companies offering a very interesting proposition and generating investor interest only to blow it all up when it came to the stage of actually providing the right documentation for due diligence.”
However, concerns about deal flow were not unanimous, with one group (located in Ontario) stating that “there is an abundance of quality deal flow”. Several groups raised the broader concern about their lack of resources – and hence personnel – which hindered their ability to recruit new an- gel investors, provide services to members and support the due diligence and post-investment
management of their portfolios. The lack of resourc- es to provide formal support for the due diligence process was a particular concern of several groups. One group raised a concern about the regulatory/ compliance requirements that are essential to be able to make investments and meet all required criteria for investors but which take time to develop the necessary expertise and require increased back office capability and resources. These concerns have been raised on a regular basis.
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ANNUAL REPORT ON ANGEL INVESTING IN CANADA
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