Things are looking up for early-stage funding in Canada, according to a report released by the National Angel Capital Organization. NACO, which represents Angel investors north of the border, surveyed 30 groups of these investors across the country. It found that investment has more than doubled since 2012, reaching $90.5 million compared to $40.5m three years ago.
Eighty-three percent of the total amount invested by Canadian angels in 2014 went into life sciences and ICT, and it was fairly evenly split. ICT investments received $35.2 million, while life-sciences companies saw $34.8 million in investments during 2014. The third most popular industry sector for angels to invest in was clean technology, although this only saw 3% of total investments, totaling $2.3 million across 10 investments overall.
The demographic of recipient companies reflects these industry sectors, said NACO. Companies backed by angel money are small and often highly active in R&D, the report found. They often posted low profitability in the year of investment, and pay high average wages compared to companies in comparative groups. This suggested that they tend to be high technology startups.
Investment patterns were different between the life sciences and ICT sectors. The average investment size in ICT companies was just half that of the average life sciences deal, the report said.
In general, though, deal sizes are increasing. The mean average deal size for companies in all sectors in 2012 was $919,000. Last year, it reached $1.229 million. The number of deals is also increasing. Angels made 237 investments in 2014, compared to 139 in 2012.
Deal sizes were still dwarfed by those south of the border, though. The median average deal size for tech firms in Canada was $650,000, while in the US, they were twice that size.
The money invested directly by angels tells only part of the story. Angels tend to invest in groups, but have been expanding their capital sourcing to source funding from other places, including venture capital companies and the government. 75% of investments in 2014 were syndicated with others outside the group. The money invested in 2014 leveraged at least $110.4 million of extra funding from these other places.
Roughly half of this extra money came from angel investors normally unaffiliated with a group. An eighth came from the government, and 15% came from venture capital, the report revealed.
Just over two thirds of the amount invested by angels (68%) went to new investments, with the remainder spent on follow-on investments. The latter shrunk between 2013 and 2014, indicating that angels are hungry for new investments.
What happens to the companies that receive angel capital? Increasingly, they get acquired. In 2014, eight companies that had received angel funding achieved an exit via merger and acquisition. One company in the life sciences industry achieved an IPO, while three companies ceased operations.
Traditionally, early and late stage funding have been strong in Canada, with mid-stage funding being softer for startups. The strong growth in angel funding, which traditionally happens early on in a company’s life cycle, reflects this trend.
However, that doesn’t mean that angels take just anyone. The statistics on funding success should be humbling for technology startups. The 30 angel groups surveyed received 2972 applications in 2014. Of those, less than 10% were funded by 25 groups.