Angels As Key to Collaborative Commercialization in Canada

An Industry Canada study recently crossed my desk. Released May 2007, the study, Case Studies of Collaborative Innovation in Canadian Small Firms, focused on network-centric innovation and commercialization.

I was highly encouraged to see Angel investors not only identified as stakeholders in this network-centric model with respect to early-stage company finance, but recognized as indispensable to solving the growing funding gap issues high-potential Canadian companies face. Even more encouraging was the recognized need to implement incentive structures that foster Angel investment.

“There is a gap in financing spinoff companies during the phase between incorporation and the point when revenues are generated from sales. The most likely source of additional funding would be angel investors, who would require the requisite incentive structures.”

“Institutional capital in Canada is sometimes not well suited to financing emerging technology companies both because of a lack of understanding of the technology and because companies at this stage of development often do not progress as fast as they would like. The solution to this gap may well lie in angel investors, provided they can be given greater encouragement to fill this specific need.”

In Canada Angel investors invest about $3.5 billion a year; nearly twice the amount formal institutional Venture Capital invests annually. Unfortunately, the Angel industry is rather decentralized. Angels, because they work as individuals or as members of Angel groups, often do not get the recognition they deserve as the investors on the bleeding edge of commercialization and company acceleration, underwriting companies at the time of their greatest risk.

The National Angel Organization, the industry organization devoted to developing a robust Angel investor community in Canada, has long recommended that both Provincial and Federal governments adopt an Innovation and Productivity Tax Credit (IPTC) to encourage Angel investment by offsetting some of the risk they face when investing in such early-stage companies. Such programs have been adopted in the UK, many US States, and a number of Canadian Provinces.

Along these same lines, I am happy to announce that Manitoba has recently adopted a program similar to the IPTC that has successfully run in British Columbia and other provinces in Canada.

“Angel investors in Manitoba are extremely pleased that the province has now formally approved its new tax credit system for private start-up investments.” said Ken Cooper, Managing Director for the Winnipeg Angel Organization. “This will really help balance the extra costs of documentation and liquidity – not to mention risk – which investors face when considering private equity deals. We’re already seeing increased interest in start-up deals because of it.”

Congratulations, Ken, from the National Angel Organization, on your success! I am gratified to see that the need for incentive structures that foster Angel investment is beginning to resonate more strongly both Federally and Provincially.