Backgrounder on 2023 Report on Angel Investing in Canada
June 8, 2023
The National Angel Capital Organization’s 2023 Report on Angel Investing in Canada is an evidence-based report that analyzes the progress our innovation economy has made, and must continue to make, to unlock the full potential of Canada’s entrepreneurs.
In 2022, despite record demand for angel capital, angel investment rates declined, mirroring the venture capital community. From 2019-2022, 60-80% of companies that experienced mergers, acquisitions, and IPOs were originally angel-backed. Declining angel investment will have long-term ripple effects, with fewer successful outcomes in 7-10 years. In the current macroeconomic environment, immediate action is needed to ensure that Canada’s moonshots, companies on track to reaching a billion-dollar valuation, have the investment capital they need to scale and grow.
Authored by Professor Colin Mason at the University of Glasgow, this report calls for Canada’s federal government to invest in a combination of core operational funding to help build angel investment capacity across the country, matching funds to help increase the amount of angel investment available to Canada’s entrepreneurs, and a national angel-stage fund-of-funds program to provide a broader range of investors with an avenue to invest in emerging fund managers at the earliest stages.
Key Data from NACO’s 2023 Annual Report (2022 Data)
Key metrics:
$166 million in angel investment in 2022, falling 37% year-over-year
This amount was invested in 379 companies across 653 deals
37% of Canadian angel organization members are women, up from 27% in 2021
Cumulative angel investment since 2010 reached $1.54 billion
Trends:
Dollars invested fell steadily over the year, from $31.2 million in Q1 to $27.3 million in Q4, a decline of 12.5%.
Deal volume also fell over the year, from 148 deals in Q1 to 107 deals in Q4, a decline of 27.7%.
Despite this decline in investment activity, demand for investment from entrepreneurs increased 3% year over year, from 7,752 applications for funding in 2021 to 7,982 in 2022.
Angel investors disproportionately favoured existing portfolio companies over new relationships with entrepreneurs: 32% of deals were follow-on investments, up from 26% in 2021 — a 23% increase over the past year.
Sector and regional breakdowns:
ICT companies continued to receive the largest share of investment at 39%, followed by Healthtech (14.4%), Cleantech (5.6%), and AgTech (3.5%).
The largest shift was in Cleantech’s share of investment, which more than doubled from 2.6% in 2021 to 5.6% in 2022.
Regionally, Southern Ontario accounted for 47.8% of total dollars invested, followed by Western Canada (15.6%), Northern Ontario (15.3%), Quebec (15.0%), Atlantic Canada (3.7%) and the Prairies (2.6%).
Implications:
From 2010 to 2022, venture capital investment grew by 10x, while angel investment grew by only 5x, indicating persistent disproportionate growth in the later stage of the funding continuum.
From 2019-2022, 60-80% of companies that experienced mergers, acquisitions, and IPOs were originally angel-backed. Declining angel investment will have long-term ripple effects, with fewer successful later-stage outcomes in 7-10 years.
In 2022, venture capital investment declined by 34%, while angel investment declined by 37%, indicating that both communities were similarly impacted by macroeconomic pressure.
Recommendations:
That the government invest in core operational funding to help build angel investment capacity across Canada, particularly in rural, non-urban, and underserved communities, to better fuel the earlier stage of the venture capital pipeline in emerging regional ecosystems.
That the government invest in matching funds to help increase the amount of angel investment available to Canada’s entrepreneurs, particularly those from historically underserved backgrounds and communities.
That the government invest in a national pre-institutional fund-of-funds program to help activate new sources of pre-seed investment for Canada’s entrepreneurs, while better supporting emerging fund managers at the earliest stages.
About Angel Capital:
Angel investors are individuals or funds that put their capital at risk in the early-stage ecosystem. This includes, but is not limited to, individual Limited Partners (LPs) that invest passively or semi-actively in funds, venture funds or family offices that invest in pre-seed and seed stage companies, and individuals that invest directly into early-stage companies on their own or with the support of an angel group.
Angel-backed companies that went on to achieve successful outcomes include Slack and Thinkific in BC; Verafin in Newfoundland and Labrador; WealthSimple and ApplyBoard in Ontario; Paper in Quebec; SkipTheDishes in Saskatchewan; and Jobber and Neo Financial in Alberta. Angel investment fuels the pipeline of companies that grow to raise venture capital and scale into the global success stories of the future.
About National Angel Capital Organization (NACO):
NACO members have invested $1.54 billion into more than 2,400 Canadian companies. Incorporated in 2002, NACO is Canada’s professional association for angel investors and the national umbrella for over 100 organizations including angel groups, venture funds, incubators and accelerators. Learn more at www.nacocanada.com.
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