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“ Accessing Angel & Venture Capital in Canada ”
Experience. Governance - Financial Management - Strategy
Integrity. Trust.
2
Real World
Gerard Buckley
[email protected]@jaguarcapital@gerardbuckleyBus: 416-645-6695
Experience and Expertise Founder & CEO of Jaguar Capital an Advisory Practice for
Growth Companies in Governance, Financial Management & Strategy
Past - Chairperson of Board of Directors, Maple Leaf Angels Corporation & founder and Lead Director for Maple Leaf Angels Capital Corporation, the General Partner of MLA48LP1 a Pre-Seed Angel Fund.
Certified Corporate Director - The Institute of Corporate Directors and Certified Management Consultant – Canadian Association of Management Consultants
Past member of Small & Medium Enterprise Committee of The Ontario Securities Commission
Investment Committee of Mount Saint Vincent University, Halifax, NS
32 yr. Career with Scotia Capital as a Financial Risk Management Advisor to Fortune 200 Companies: Rogers, Irving Group, Empire Co., Four Seasons, Bruce Power, OPG, Province of Ontario, Ford etc.
What, Who, Why, When and How of Angel Investing
Selection Criteria
Angel Network in Canada
Canadian Angel Group Activity 2015
Angel Resource Institute – Halo Report 2015
Traditional Angel Network is changing
Angel List is now in Canada
Investment Process
The Benefits for Entrepreneurs
Venture Capital in Canada
Canadian SME Market Trends
Trends in Canadian Early Stage Investment
Parting Thoughts
Q & A
Agenda
Angel Investing is individuals investing their personal money in the equity or debt of a Early or Growth Stage Company
Often referred to as Smart Money, it is where individuals wish to invest their time or experience as well money in a start-up company.
People wishing to give back their experience so others may benefit which is often referred to as mentoring or serving on a company Advisory Board or Board of Directors
Angel Investing is Active Investing not Passive
What is Angel Investing
Angels are investors who leave out control. They essentially bundle Advice & Money
A High Net Worth person prepared to invest their personal or family money
A person who can add value to the company
An accredited investor as defined by OSC 45-106
A member of an angel network
The majority of angel investment in Canada is completed by individuals >85%
There at least 10,000 to 15,000 angels belong to over 300 groups in the USA.
In Canada we have 1650 active angels in 32 groups.
Who is an Angel Investor
Years investing 9
Number of Investments 10
Total Exits 2
Years as a Entrepreneur 14.5
Number of ventures founded 2.7
Age 57
Percent of net worth 10%
Education Masters Degree
Profile of an Angel Investor - Median
Wiltbank Study 2007
Qualified Opportunities
Opportunity referral
Increased Capital Diversification
High Risk Asset Class …. Seeking High Returns
Favourable Valuation and Terms in comparison to VCs
Networking
Portfolio company mentoring or engagement
Shared Due-Diligence
Advisory Board and Board of Director Roles
Why would someone be an Angel Investor
Companies who are in seed and early stage.
In technology, life sciences, ICT, health care devices, med tech, clean tech, power solutions, fin tech, …..
Solve a Problem, Secret Sauce or technology .......
USP, validated business model
Great management team
What Type of Companies do Angel Investors Invest In
Equity Capital Life Cycle
High anticipated growth rate – Scalability
Experienced management team
Sustainable competitive advantage
Barriers to entry ie. Exclusive IP
Clear strategy for commercialization
Proof of concept or enterprise level validation
Business model anchored in Reality
Investor exit strategy in 5 to 8 years
Investing in what you know – vertical expertise
Coach ability of the entrepreneur
Amount of dilutive capital required
What Angels Look For
More hours of due diligence positively related to greater returns (> 40 hours)
Experienced former entrepreneurs as angel investors
An angel investor's expertise in the industry of the venture being invested
Angel Investors that interacted with their portfolio companies at least a couple of times per month mentoring, coaching, providing leads and monitoring performance experienced greater returns.
Training, mentoring and coaching for new angel investors
Portfolio investing
Not withstanding there is no silver bullet to a successful outcome
Factors That Appear To Affect Investor Outcome
Pre-seed Investments up to $100k which usually includes family and friends
Seed investment should be from $250k to $500K
Early stage investments should be from $350k to $1,500K
Valuation 1.5 to 4.5 million
The stage, quality of the management team, valuation and technology of companies are more important than
the sector criteria
Quality is more important than quantity
In Canada 6% of companies get funded (94% don’t)
In Silicon Valley (1/300) get funded
Selection Criteria
NACO – National Angel Capital Organization is the National Industry Association
Canadian Angel Groups range in size from 10 to 100 members
32 of 40 Angel Groups in Canada participated in NACO’s 2015 Survey with 90% on investment in their home province
They have collectively 1650 investors a decline of 2% from 2014
72% of groups established for five or more years.
67% not-for-profit and 20% for profit
Majority do volunteer shared due-diligence
13 Angel Groups in Ontario
Keiretsu Forum, Roadhouse Capital, Golden Horseshoe Venture Forum, etc. are Private For Profit Angel Groups
According to Invest Toronto, almost half (40%) of the top 250 technology companies in Canada are headquartered in Toronto which is 3rd only to Silicon Valley and New York in North America.
Angel Networks in Canada
283 Investments in 2015 totaling $133.6mm up from 237 investments and $90.5mm in 2014
Average investment is $1.16mm, stabilizing around 2014 figures & Median Value $635k
Of over 1650 Cdn investors in Cdn angel groups, 67% located in Central Cda, 28% West, 5% Eastern Cda. 79% of value of investments made in Central Canada
ICT (55%), Life Sci (8%), Clean Tech (5%)
Follow on investment increased ‘15 over ‘14
Equity Investments dominate at 96% with
Common Shares at 45%. Convertible Debentures at 28% and Preferred at 23%
75% of transactions involve a co-investor. 57% with other angel investors and 9% with Venture Capital
Valuation – Median $2.5m, Mean 3.3m
Of 4,473 applications in Canada 6.3% get funded by networks
In 2015 there were 12 positive exits recorded. 6 were M&A, 2 IPOs and 4 were sales to new or existing shareholders
Canadian Angel Group Activity - 2015
Angel Resource Institute – Halo Report 2015
Median Angel Round Size trends up to $850k in 2015 from $510K in 2014. When invested with others 1.6mm
Pre-Money Valuations continue to climb at $4.6mm in 2015 a 53% increase from $3mm in 2014; however, top valuations increased from $13.5mm to $23.5mm
70 to 80% of deals occur in angel groups’ home states
73% of Angel Deals are Syndicated or Co-Invested
Only 20.9 % of angel deals are transacted in California
Share of Deals by Sector - Software 33.9%(-), Commercial Services 8.7%(-), Healthcare 14.1%(+), Media 3.8%(-), Consumer Goods & Recreation 2.4%(-), Pharma & Biotech 7.3%(+)
Currently Southern Ontario Angel Investment community has 13 Angel groups
Government programs ( IAF, MaRS, OCE, IBI)
Online - Angel List, Syndicates, Funders Club, The Funded, Gust
Y Combinator, Tech Stars, 500 Start-ups, +110 Accelerators in Canada …. Consolidation occurring to access gov’t funding
Incubators & Accelerator funds
Crowd funding such as kickstarter.com and equity crowd funding
Introduction of OM - Offering Memorandum will have an impact
Super Angels & Micro-VC’s
“Future of Venture” – unbundling of advice, money and control
Traditional Angel Network is Changing
Angel List Canada announced as a Exempt Market Dealer by OSC on October 24
Introduced to Ontario, Canada by Creative Destruction Lab and Next Canada (both related to UofT)
A Online Portal for Accredited Investors
AngelList USA raised $163mm from 3,379 investors on behalf of 441 start-up companies in 2015, up 56% over 2014
There were 170 syndicates on AngelList in 2015
40% of the rounds were private and institutional money were in 40% of the deals
AngelList also matches potential hires. In 2015 with 250,000 candidates 548,000 matches were generated.
Angel List is now in Canada
What should you be doing to attract Capital
Investment Process
1. Pre-screening – Network Staff
2. Curbside Mentoring or Individual Member Mentoring
3. Present to Investment Review Committee
4. Present at members meeting
5. Due-diligence Committee is formed and led by a member
6. Term Sheet is negotiated & agreed between parties
7. Investment is papered by lawyer
8. Member is appointed to board
9. Quarterly company reporting
Investment Readiness Level
Identify and Validate Metrics That Matter
Validate Value Delivery
Prototype High-Fidelity Min. Viable Product
Validate Revenue Model
Validate Product/Market Fit
Prototype Low-Fidelity Min. Viable Product
Problem/Solution Validation
Market Size/Competitive Analysis
Complete First-Pass Business Model Canvas
IRL 9
IRL8
IRL 7
IRL 6
IRL 5
IRL 4
IRL 3
IRL 2
IRL 1
Created By Steve Blank
Large capital source
Broad pool of Knowledge & Contacts
Efficient Process
Capital Connections
In many provinces there is investor tax credit
Leverage sources of funding (IAF, IBI, BDC etc.)
Focus on value-add and advice, not the biggest cheque
Entrepreneur Benefits
Entrepreneur Tips
Find your lead investor early
Investors don’t have to be in tech
Have a good business plan and executive summary – Most investors tend to think of start-ups without a plan as expensive hobbies
Most Decks Suck – Make yours Good
Set a deadline
Develop a Funding Strategy
Put money in yourself, it goes a long way
Super Hero of The Modern Start-up World
Venture Capital Investment Activity in Canada
Cdn VC’s invested record high $1.5b (255) in H1‘16 is up from $1.1b (272) in H1’15. Ave. deal size has grown to $6.1 mm up from an ave. range of $4mm in 2015.
Regional breakdown for H1 is Ont 44%, BC 19%, Prairies 6%, Quebec 28% and Atlantic is 4%. In 2015 Ontario accounted for 38% of deals and 42% of disbursements. Quebec represented 31% of disbursements for the same period.
Information and Communications Technology (ICT) 67% is driving most of the growth followed by Health and Life Sciences 20% and Clean Tech 7%.
VC investment was up in 2015 with 536 deals for 2.3b an increase of 24% and 12% respectfully over 2014
In 2015 there has been a shift by VC’s towards earlier stage deals (seed stage up 30% to 178 deals) at the expense of later stage deals which is down 12% in volume and 23% in amount invested.
Exits were also up in 2015 reaching a record 4.3b compared with 1.5 b in 2014 and 1.3b in 2013
Of 1.5b invested in H1’16 644mm came from public pension plans and 534mm from government sponsored funds
Venture Capital Investment
For entrepreneurs, choosing the best financing model for their start-up isn’t a luxury – it is a necessity
The terms you will be offered will be commensurate with the value you have created. Sales = Higher Valuation
VC’s money comes from LP’s which is mostly institutional
Some VC firms walk and talk like groups on angels. See seed financing in the #’s.
Venture Capital Pros
Small piece of a big company is better than a large piece of a small company
Their goal is to grow the company quickly and exit.
Deep pockets for follow on financing
Allows you to focus on the business rather than constantly raising $
VC firm name helps & signaling positive
It is their FT Job to help you succeed
Industry expertise
Venture Capital Cons
You have to qualify Often looking for exit in short time
frame Negotiations tend to be one sided Legal costs of documentation are high Equity has a higher cost than debt +30% Staff & time commitment for due-
diligence Reduced control or determination of
business VC’s ask for and get better terms than
Angels
Your business is exposed to the VC’s funding cycle and market uncertainties
One author referred to VC’s as a last resort
May control board decisions Follow on Financing requires higher
valuations to support VC’s valuation Funding is down and VC’s are taking less
risk. Series A crunch
Pitfalls
Complex covenants based on performance metrics
Inordinately thick documents
May replace management
Liquidation preference
Anti-dilution clauses
Loose control of the direction of your company
May hold veto rights or rights to sell company
Signaling effect (VC in seed round & passes next round)
Where does your deal flow come from?
Do you charge for presentations? Or charge for due-diligence? Or Performance Fees?
How much management Fee do you charge? How much interest carry do you charge investors?
How often do you hold pitches?
Do you help prepare pitches?
Do you invest together or make a investment decision separately?
Do you have a fund or make pre-seed investments?
Do you disclose your investment process?
Who will your board nominee be?
Questions Entrepreneurs Should Ask Angels or Venture Capitalists
Canadian SME Market Trends
Nation of independent contractors
The state of employment is changing dramatically
Canada is an Immigrant Nation
Productivity in Canada has not improved
USA advantage is the development of their risk Capital Markets
Cost of start-up in CDA is less that USA (especially Silicon Valley)
Seed and Pre-seed level is where VC money is going
Consolidation of Accelerators and Incubators
Angel Tax Credit provincially and is being lobbied federally
Valuations for public companies are high and is effecting private markets
Less exits
Trends in Canadian Early Stage Investment
There is a lot of attention being paid to Fin Tech especially in Toronto
Medical Technology has always and still is a focus of MaRS Innovation
Gaming has received a lot of attention in the entertainment space through Digital Media Fund and conferences such as Game on in Canada
Social Media applications are tougher due to freemium business models that are tough to validate
The collaborative or shared economy gets attention where the company has got traction, validated a product market fit and acquired customers such as Dozr, Waterloo and Share The Bus, Montreal
The auto industry is blistering hot in USA; however, large capital is required when we are speaking about such technologies as Autonomous Vehicles. Notwithstanding cities like Stratford are making themselves available for testing sites of such vehicles. To date no applications filed
Accelerators such as MaRS, Highline, Next Canada & Creative Destruction Lab in Toronto, Communitech in Waterloo and Founders Fuel in Montreal are getting a lot of attention.
Do It Your Way –Parting Thoughts
Over 90% of all businesses are started and grown with no equity financing
VC is the OPM (Other Peoples Money) drug of Start-ups
Oct’13 Profit Hot 50 - Seed Financing – 98% Founders own capital, Growth Capital – 62% Founders own Capital
Control your destiny until you create sales
Eyes Wide Open and be well researched
Send me a email and I will send you a recommended Due Diligence Checklist and/or a Sample One Page Executive Summary
MissionTo be a Trusted Advisor and Visible Expert to Companies for our Core
Competencies
CultureExperience
IntegrityTrust
VisionTo Grow a Canadian Based
Internationally Comprehensive Advisory Practise Focused on
Growth Companies
Who is Jaguar Capital
Target CompaniesGrowth Companies Where our
Consultants Add Value
Focused IndustriesEnergy, Digital Media
Technology, Healthcare Manufacturing
Financial Services
Specialize In Forming Advisory Boards
Board of Director ConsultationRaising Alternative Financing
Pre-Revenue Valuation
Focus OnGovernance
Financial Management Strategy
What Jaguar Capital Does
How We Do ItAdvisory
Management ConsultingInterim Executive
1. We HELP Companies get Financed
2. We HELP Companies Increase Investors Confidence in their Investment
3. We HELP Companies Grow
4. We HELP Companies with Strategic Direction
5. We HELP Companies Manage Financial Risk
6. We Get a Company Positioned for IPO
7. We HELP Companies with Dysfunctional Boards of Directors, Advisors &
Disruptive Directors
Benefits of Working with Jaguar Capital
“1/3 of all SME’s in Canada had problems accessing additional financing, let Jaguar Capital help you attain the financing you deserve”
– Gerard Buckley
