Angels, Exits and the VC Model

Business Week recently ran an article entitled, ‘Super Angels’ Shake Up Venture Capital, which examined the ever-changing seed-stage investment market. There has been much talk over the last year about the VC model, trying to determine if it is a model that still works for early-stage investment. Many have argued that it doesn’t and that, “as large VC firms cut back, a hungry bunch of seed-stage investors are helping entrepreneurs get their ideas off the ground” instead.

Even faced with a financial world aflame, Kopelman and a wave of new investors are running straight for the fire. It may be bravery or foolishness, but they’re funding startups and entrepreneurs at a time when almost everyone else is holding back. In the latest sign of conflagration, venture capital investment plummeted 61% in the first quarter, to $3 billion, the lowest level since 1997. Only $169 million of that went to companies seeking their first round of venture money, what’s known as seed-stage investments.

Basil Peters, the Canadian seed-stage investor that managers the Angel Fund, Fundamental Technologies II, recently released a book on one facet of the early-stage investment climate as well. In his new book, Early Exits, Peters examines the Angel exit in contrast to the typical VC exit.

This book is about the large number of other exits – the ones that are not driven by the VCs. Exit opportunities have changed dramatically in the past few years. Today, it’s more likely that a company will be sold without ever having an investment from a venture capitalist.

With the drop in VC investment in Canada, one cannot help but wonder if the model does need an overhaul, especially with respect to seed-stage investments.

Until such time as the dust settles on the VC model debate, you can rest assured that the Angel community in Canada remains active, as demonstrated at our recent Co-Investment Summit.