My previous article on start-up funding sources covered the Investment Accelerator Fund. For the next article in this series, I will cover the National Angel Capital Organization (NACO). I recently met with Dan Mothersill, President and Bryan Watson, Executive Director from the National Angel Capital Organization.
Craig: Thanks for taking the time today to speak with the StartupNorth readership. To start, can you give the ’30 second elevator pitch’ on the National Angel Capital Organization?
Dan: Sure, the National Angel Capital Organization is the umbrella organization that represents angel groups in Canada. Its members are the 32 organized angel groups across Canada. NACO has various programs to help support and encourage angel investment in Canada such as:
- Support for angel groups to get setup and be sustainable
- Publishing best practices on angel investing and running angel groups
- Advocating to government for policy initiatives to support angel investing (i.e. grant money to support angel groups, tax breaks for angel investment dollars)
- Fostering co-investment across angels groups in Canada and other regions of the world
Craig: To clarify, NACO does not make investments in companies like your member organizations?
Bryan: Correct, individual angel investment occurs via our constituent groups and their respective members. If companies approach NACO looking for funding, I refer them to one of our member groups that is the best match in terms of location / industry.
Craig: For angels in Ontario, there has been an exciting program, the Angel Network Program, that has made a big change in the ecosystem around angel investing. Can you talk about this?
Dan: Angel investors play a critical role in helping fund early stage companies and helping them commercialize and advance to the next level. However, from an entrepreneur standpoint, without organized angel groups, it can be hard to find and approach ‘lone wolf’ angels that invest individually. Prior to the Angel Network Program, there were only a couple of organized angel groups in Ontario. Now there are a dozen that cover a range of geographic areas, industry sectors, and university affiliations. Having organized angel groups makes it easier for entrepreneurs to get matched with angel investors as the groups are setup to promote themselves, intake deal-flow, and present to members. The Angel Network Program is funded by the government of Ontario and provides grants to angel groups in Ontario to give funding to groups to setup and support themselves.
Craig: This is a great program, I know the board at Maple Leaf Angels really values the work NACO did to get the program established and it is a key factor in the successful operation of our group. Having established angel groups is clearly beneficial to entrepreneurs. Can you speak about the advantages to angel investors?
Dan: Research has shown that that angel investors that invest via an organized group get better deals and higher return on investments. Since the angel group is actively marketing itself, they generally see more deals and higher quality deals. Most angel groups have a selection committee that helps narrow down the deals into the best few that are presented to members. Since this selection committee is comprised of several members with a wide variety of professional expertise, they can better assess the quality of deals across a variety of industries. Similarly, when it comes time to do due diligence on a candidate company for investment, there is a greater chance that somebody in the angel group has direct industry expertise or contacts that can do a detailed assessment of the company. Compared to an individual angel that may only do deals in the industry they are comfortable with, by investing through an organized angel group, they can assess deals in a wider range of industries which will help them build up a more diversified portfolio.
Craig: What are some of the companies that have been funded by angel groups established by the Angel Network Program?
Bryan: Some examples include: Speech Bobble, Cubeit, Spartan Biosciences , and a StartupNorth favourite, Well.ca. In total, an estimated $13 million in investment has been made as a result of this program.
Craig: That’s great. In addition to the capital investment, have there been other advantages?
Dan: Yes, definitely. From the entrepreneur standpoint, the ability to get several angels invested in their company is extremely beneficial from a mentoring/networking point of view. Many angels are themselves cashed out entrepreneurs and are willing to lend their expertise and connections to help their investee companies. From the government standpoint, the success of the Angel Network Program has helped to showcase angel investment as a class and show the importance that angels play in the commercialization lifecycle. Angel investment in Canada totals over $2.2b annually.
Craig: Moving on, NACO has been spending a lot of time of late to foster co-investment across angel groups. Can you talk about why this is important?
Dan: With the challenges in the VC system, it has become harder for companies to get follow-on financing. This is bad from the company standpoint as well as the angel investor standpoint. Co-investment aims to encourage deal exchange between angel groups. Namely, if one angel group invests in a company and sees them make good progress, we want to enable deal flow to other angel groups for follow-on company financing. This is a win-win situation as other angel groups will see high quality deals since their peer angel groups already have a working relationship with the company and the original angels will ensure there is a follow-on source of funding for their portfolio companies.
Craig: What events has NACO held around co-investment?
Bryan: NACO held the first Canadian co-investment summit in November 2008. 25 companies presented at this summit and at last count over $2m of investment has closed as a result. NACO recently held a second Canadian co-investment summit in May 2009 where 15 companies presented. We will aim to hold 1-2 co-investment summits in Canada each year. To date our events have been in Toronto but we are looking to hold them in other cities next year.
Craig: How does a company get selected to attend a co-investment summit?
Bryan: We have two qualifying criteria. First the company must be nominated by an angel investor. This angel will appear at the summit alongside the company to give their perspective on the company and why they feel the company is a strong investment. Secondly, the company must have at least $250k of outside money (i.e. in addition to friends/family/founders). For our last co-investment summit we received 60 applications. A selection committee composed of managers of several angel groups reviewed the submissions and narrowed it down to the 15 that presented.
Craig: What future co-investment initiatives are planned?
Dan: In the fall, we will be expanding our co-investment initiatives to the US and Europe with co-investment events planned in Boston and London. In the future we are looking to expend this to other regions such as China and India.
Craig: Most companies in Canada probably look to the US as their key market outside of Canada. Can you talk about how the European co-investment initiative will be able to help companies?
Dan: As you mentioned, the US is an important market for an early stage Canadian company to target. This is relatively easy to do given the language, culture, geographic proximity. However, when expanding sales and marketing channels, to Europe, this gets harder. Our goal is to find established early stage companies that are looking to penetrate the European market. By matching with angels in Europe we can help enable this expansion through capital and more importantly knowledge/contacts that European angels can bring to support the company in launching into Europe.
Craig: We’ll look forward to seeing this grow and develop over time as it will be good to develop broader relationships across angel groups across the world. Lastly, NACO is holding their annual summit in October. Although more geared towards investors vs. entrepreneurs, can you give a preview of what is planned at this event?
Bryan: Our summit is run for angel investors with various speakers, panels, and educational topics to help angels understand the investment process and keys to being successful. Two confirmed keynote speakers include Basil Peters, who will talk on how to build (angel funded) companies for early exits based on his recent book , and by Alan Barrell, renowned UK Angel investor, who will talk on cross-border investment. We will also have a small co-investment track where 5 companies nominated by our member angel groups will be able to make an investment presentation.
Craig: Dan and Bryan, thanks again for speaking about the National Angel Capital Organization today. NACO has done a lot of great work to promote and develop angel investing in Canada and all of us in the community look forward to continued development of the various programs you have on the go.
craig at mapleleafangels.com