STATE OF THE ANGELS: ESPRESSO TALKS TO KAREN GRANT OF ANGEL ONE

We sat down with Karen Grant, Director, Angel One Investor Network, to talk about the key trends impacting angel investors and the opportunities and challenges facing angels in today’s investing environment.

Is this a good time to be an angel investor?

I think it’s a great time to be an angel investor. The start-up environment is very active and there are so many government programs that work well with angel investors across the country. The angel’s investment is augmented by government funds so the company has more working capital, and it’s not dilutive. It helps de-risk their investment, which is all any angel is looking for.

What’s important for angels these days?

One of the biggest issues within the angel community is how you exit your investments, and how you exit well. A lot of people are putting together fairly sizeable portfolios of angel investments. And how many significant Canadian exits have there been? It’s important to find  other ways to help investors see a return, and move on to do more investing.

Are there more angels around?

Without a doubt, I think we are definitely seeing more of them because there are more formal angel groups forming across the country. They have always been there but they’ve been less structured and not as visible.  With the formation of more formal angel groups, and federal and provincial government programs to bring them front and centre, angel investors are becoming more accessible for start-ups and are coming to represent a more prominent source of capital in the ecosystem.

What are the benefits of being part of an angel group?

Operating independently, you have access to your particular clique. But if one of your group does not get approached, there are deals that you miss, and a lot of that depends on where you are geographically located.  The structured groups create a channel for angels; that is what joining an angel group does. It creates a channel for your interest. We have 90 people in our group with a wide range of expertise – that is a large network to attract and evaluate deals.

Are there more new angels?

Yes. There are more first timers coming into angel groups.  Five, eight years ago when the approach was you invested with your small group of people you knew and trusted, and the angel community as a whole was less visible, I just don’t think there were as many newcomers to the practice. From the viewpoint of start-ups, it has been a huge boom – you just need to look at the dollars. Not too long ago, it was hard to find angel investors for a startup company. Going to a VC with a startup idea was ridiculous, and trying to find someone with enough money to support your wild idea was hazardous work. Now you can put together a due diligence data room on Dropbox, and then you can go out and apply to 13 angel groups within an easy drive of downtown Toronto. That is a big change. And the founders don’t even have to do all that work. In our group, 70% of investments are syndicated with other groups, so we do the work for them.

Are there any challenges facing the angel ecosystem?

One of the problems in Canada with the angel community is that most of the angels are mature. It is different in the U.S., particularly Silicon Valley and New York. In Canada, specifically Ontario, a large portion of the angels are more mature. When you hit 60-years-old and you have eight companies in your portfolio, it may take 14 years to see a return. The problem with this picture is succession planning, and what to do with your portfolio has become top of mind for more mature members of angel groups.

Jim Estill, for example, has a phenomenal personal portfolio of angel investments. He is now admitting to more than 150. Here is what he has been telling people – his average hold period is 14 years. You often hear people talk about investment periods of five to seven years but that is from a VC’s perspective. If an angel gets involved in a seed round deal, it may take as many as five to seven years before the company attracts the attention of VCs. The VC investment period adds another five to seven years, which is 14 years. One guy in my group has been involved in a company since 2008, and he’s still holding the investment.

Looking ahead, are you optimistic for the continued role of angels?

Absolutely. I think angels will continue to play a key role in the ecosystem, not only by providing much needed capital at early – and critical – stages in a company’s growth, but also by providing mentorship and guidance to founders as they build their businesses. Their numbers are growing but what we need to see is more younger angels involved in supporting the tech ecosystem. Angels will often be the first partners on a company’s long and successful journey from idea to exit – and that is an exciting role to play.

Blog post by Mark Evans, Author and Marketing Consultant at ME Consulting.