Built by Angels is a new podcast series that will guide you on the road to venture capital scale and growth. Interested in funding the next big thing? Are you an entrepreneur searching for capital, to fund and scale your company? Are you on the sidelines, wondering how to jump in, while everyone else is building, backing, and supporting the next generation of entrepreneurial companies?

Stay tuned, subscribe and join us on this exciting journey, as we transform ordinary listeners into extraordinary investors. 

This podcast is for informational purposes only and is based on the book "A Practical Guide to Angel Investing, 2nd Edition" authored by Steven Gedeon PhD and published by the National Angel Capital Organization. Content discussed is for general guidance on matters of interest and should not be taken as professional, legal, business or investment advice.

Most angels have enjoyed a successful business career and want to share their expertise and experience with younger entrepreneurs. Of course. They want and expect to gain above market rates of return on their investments. That's what makes this form of investing sustainable, but often they also want to pay it forward to help others and give back to their communities.

Angels are often retired executives or other professionals, or in many cases, they are former entrepreneurs who ran and sold their own companies. Business angels invest because of their love for entrepreneurs and the entrepreneurial journey. Angels invest for many reasons, including the excitement of being involved in an interesting company or industry. The desire to mentor the next generation of entrepreneurs, the desire to pay it forward by sharing their expertise with those who need it, contributing to the economic growth of their region, community, or country.

This podcast will help distill the wisdom of hundreds of angel investors who came before you.

What will you do with the next 20+ years of your life? For most angels, the answer is:

"I want to contribute to the good of my community"
"I want to continue to do what I love."
"I want to be involved in strategy, important deals and major decisions."
"I want to lend my expertise."

The value of angel groups is that they essentially help mitigate your risk. Angel groups help you attract the highest quality deals and help you go through a due diligence process that vets out the deals that have a disproportionately high chance of failure, or a very low probability of success.

Angel groups provide discipline, additional due diligence, and deal flow resources that will mitigate your risk and increase the probability of return. 

More on this topic in future episodes.

We are here with Senator Doug Black, Chair of the Senate Banking, Finance, and Trade Committee. 

The innovation ecosystem in Alberta has a tremendous potential. We see an opportunity to transition the risk capital, that has historically been in more traditional industries, to the high growth industries that can contribute so much to the economy. From your perspective, what can we do as a national organization and what can angel investors do to contribute to Alberta's renaissance? 

We need to find bridges. Build those bridges and make sure folks cross them. Specifically, in respect of Alberta. I spent a fair bit of time as an elected Alberta Senator moving through the province, understanding what I would call "Alberta 2.0" needs to look like. We have historically relied upon the oil and gas industry, and this is a very powerful, important industry. But, we recognize that we need to focus on a transition.

Alberta 2.0 will take time. A large part of that is going to be technology. Whether it's specifically in the oil and gas industry, the renewables industry, the banking industry, or the agriculture industry. There are huge opportunities throughout the Alberta economy.

Angel investors bring more than capital. The knowledge that you have, your experience, what you've done in your professional life is exceptionally important for helping the next generation of entrepreneurs achieve success. 

High potential entrepreneurs in Canada do not need to exit. They do not need to sell their companies in order for the investors to achieve liquidity, 

Where only a small percentage of angel investors do exceptionally well, a very wide range that don't do well at all. The distribution of returns shows that over half of all investments never return their original capital or fail completely. In contrast, 10% of exits produce 90% of total returns.

Since only 1 in 10 investments will tend to account for almost all returns, successful angels must use a portfolio diversification approach. Investing in only a couple of deals over several years is a weak investment strategy. This need for a portfolio to reduce risk is the same as the reasoning behind mutual funds or index funds. 

This speaks to the importance of diversifying your angel asset portfolio through investments in angel funds and participating in angel groups so that you can engage in a thorough due diligence process. Having the appropriate depth of education and training will help to be able to decipher between the riskier bets with a low probability of success from those rare investments that have a higher probability of success. 

High potential entrepreneurs in Canada do not need to exit. They do not need to sell their companies in order for the investors to achieve liquidity. Liquidity mechanisms are in development that provide angel investors with a return on their capital. This includes secondary market funds, venture capital and growth funds that provide liquidity to angel investors, and other mechanisms in development. 

NACO is engaged in initiatives to increase the level of integration across the funding spectrum, so that the funding continuum is smoother between angel to venture capital. Creating greater connection between angel investors and venture capital investors, allows for venture-grade companies to graduate out of the angel investment portfolio into the venture capital portfolio, and continue on to growth.

More on this topic in future episodes. 

How do you value a company? How many companies do you need in your portfolio? The general suggestion among Canadian angels is 20 companies.

Dr. Wade Brooks estimates that you need 40 companies to have a 95% chance of getting the average internal rate of return of 27%. A portfolio of 20 companies would give you a 60 to 70% chance of hitting the average. This is based on NACO data from the National Angel Summit in 2015. However, these numbers can be misleading.

Angel investment practices across Canada vary tremendously and we will explore this diversity in more detail as we go through the six chapters of the book. A practical guide to angel investing. Of course, success takes more than just luck and a large portfolio.

Angel experience, length of due diligence and post-investment participation in accompany coaching and governance also all play a significant role in increasing the rate of return and increasing the chances of success. This speaks to the critical importance of being associated with and participating in an angel group in your local community. NACO has 40+ angel groups throughout the country in virtually every region.

These angel groups provide a network of experience, and it is through the angel groups. In addition to NACO's innovation and entrepreneurial hubs around the country that we deliver

NACO Academy sessions ensure that you have the training necessary to increase your probability of success. You can purchase the book, A Practical Guide to Angel Investing, 2nd Edition, on Amazon.ca by clicking here. 

Lessons learned from Patrick Lor, Co-Founder of iStockphoto and Managing Partner at Panache Ventures based in Calgary, Alberta. 

"I don't know if there's anything secret about this. But, we grew iStockphoto off the side of our desks and eventually iStock became such a success that we sold it for $50 million U.S. A few years later, they were doing about $300 million worth of revenues. The company would have been worth a few billion dollars. We didn't have that billionaire mindset."

Part 2 of this interview coming soon. Stay tuned. 

Recorded on location at the Western Angel Investment Summit 2020 in Victoria, B.C. 

What is the role of angel investing in the economy? If there is no capital, there is no company. It's as simple as that.

Without investment capital, there would be no new companies and no new jobs. Our economy would be in zero growth mode. This is based on a quote from Carl Furtado from the Golden Triangle Angel Network.

Small to medium size enterprises, referred to as SMEs, are defined as companies with fewer than 500 employees and they represent over 98% of companies in North America and Europe, employing over two-thirds of all workers.

A small fraction, around 4% of these SMEs, are high growth companies – called Gazelles, that create virtually all new jobs.

What is the connection between job creation and the entrepreneurial economy?

Virtually 100% of all new jobs in the last 30 years have come from new company creation. This is true of all developed countries. U.S. job data shows this particularly well. Angels play a critical role in the economy, investing in 27x more startups than venture capital investors.

The Golden Triangle Nework (GTAN) has an infographic that shows their group's investments alone have created over one thousand jobs since its inception in 2009.

Two major forces are affecting the angel asset class.

First, entrepreneurs need less capital than ever to prove their business models. Using agile lean techniques, they can achieve significant growth.

Next, the ability for angels to co-invest in syndicated deals has increased.

Successful angels often syndicate deals and co-invest with everyone across the investment ecosystem, including internationally with venture capitalists, angel funds, founders and government partners.

Some of the most attractive angel investment opportunities use technology-based barriers of entry to achieve competitive differentiation and high valuations.

While Canada invests heavily in scientific research and development, it is difficult to commercialize these techniques and bring them to market with solid business models.

Angels provide a vital bridge across the commercialization funding gap, filling the gap in the funding continuum between initial seed capital from friends and family– and the larger scale investments made by venture capital.

If funding is not available through this often lengthy interim development phase, many startups would fall into the Valley of Death, reducing the pipeline of businesses for later stage growth and development.

As summarized by Bryan Watson, former Executive Director of NACO, it was not that long ago that the majority of policy and support programs were designed primarily for supporting venture capital-backed companies. Angels, a collective of individuals, are a difficult entity to develop policy for.

The economic crisis of 2008, and crowding out of angel investors in the Canadian market coupled with increased sophistication of angel groups, allowed angels to communicate with all levels of government. This led to programs that angel-backed companies could leverage to cross the funding-gap, while also helping to offset the risk faced by angels. This is based on research from Cumming and Macintosh (2006).

The innovation funding gap continuum shows that angels fund companies to scale-up. The Valley of Death is in that chasm between seed and maturity. This is where individual angels, angel groups, angel syndicates, and funds, help smoothen the journey across the funding continuum for Canadian entrepreneurs.

Some provinces also give angel investors direct tax credits to incentivize investment into entrepreneurial companies, and help reduce the risk of the asset class to a level that incentivizes investment.