4.2 Government Initiatives: What Angel Groups Need THE INVESTMENT ENVIRONMENT
Several groups argued that in view of the critical role of angel investment in supporting early stage high risk ventures, governments should consider providing ongoing, multi-year financial commit- ments to projects administered by angel groups, particularly not-for-profit organizations. The point was made that there are significant incremental costs associated with mobilizing angel activity; however, most angel groups are operating with se- verely constrained financial resources. Therefore, not-for-profit organizations in particular, have to rely on volunteers who only have a limited amount of bandwidth and/or expertise to deliver needed services. The leaders of one group contrasted their resource-constrained situation which necessitates that they “work for a very low hourly rate” (and have committed personal funds, and hence taken on fi- nancial risk, to roll-out an expansion of the group) with “well-funded, over staffed entrepreneur fo- cused support organizations” that they work with. Additionally, some groups had experienced cuts in existing funding which covered as much as one- third of the operational budgets for some of the smaller member groups. And because “there was no warning that this funding would be cut off, they are scrambling now to try to replace those funds.” One group conceded that “most groups have been undercharging [angels] for membership.” However, raising membership might discourage angels from joining groups, thereby exacerbating their financial difficulties. Emerging, smaller not-for-profit angel
groups are particularly vulnerable to cuts to their funding. Larger angel groups are more able to stay afloat on account of their sizeable memberships and support from corporate sponsors. It was further suggested by one group that some of the costs that angel groups incur in appraising companies that approach them for funding could be reduced or eliminated by the creation of a na- tional initiative, modelled on the Social Innovation Academy, that supports analysts who would work with angel groups to undertake the analysis of companies seeking finance and have proceeded beyond the initial screening stage and put together due diligence documentation. Beyond providing funding to contribute to sup- porting the running costs there was, once again, support for tax incentives to stimulate more angel investment in recognition of its illiquid and high- risk nature. Atlantic Canada respondents empha- sized that tax incentives should be regional rather than provincial. There were also calls for a federal tax incentive to complement provincial programs. The value of non-dilutive support provided by federal and provincial governments, notably the National Research Council (NRC) of Canada Industrial Research Assistance Program (IRAP) was also highlighted as enabling companies at the pre- revenue stage to prepare for angel investment.
56
ANNUAL REPORT ON ANGEL INVESTING IN CANADA
Powered by FlippingBook