Angel investment reached a new record of $163.9 million in 2019, bringing angel activity to more than $1 billion in Canada over the last decade, according to a new report from the National Angel Capital Organization (NACO).
“To emerge from the economic crisis, Canada needs to activate increased angel capital by an order of magnitude.” – Claudio Rojas, CEO of NACO
NACO’s 10th annual report spotlights angel investment activity and year-over-year trends to provide insight into the significance of angel investing in Canada’s innovation economy. The report defines angels as community-based investors that are the main source of early-stage capital for Canadian entrepreneurs.
“This report demonstrates the important role that angel investors have had in the development of the innovation ecosystem, marking a new milestone with $1 billion invested in support of Canada’s entrepreneurs,” said Claudio Rojas, CEO of NACO.
The record $163.9 million in funding was tracked across 299 investments in 2019. This is the highest annual amount invested in the last decade, an increase of approximately 15 percent from 2018 figure and exceeding 2017’s previous record. NACO determined that every dollar of angel investment results in $156 in revenue for angel-backed companies.
The record $163.9 million in funding was tracked across 299 investments in 2019. (Source: NACO)
Women represented less than one-fifth of angel group members last year, which NACO noted was “consistent” with 2018’s numbers. This indicates that women participation in angel investing has not improved significantly over the last year.
Angel investment activity is also distributed unevenly across Canada, the report found. Central Canada, including Ontario and Quebec, accounted for 86 percent of investments, compared with 13 percent in Western Canada, and only one percent in Atlantic Canada.
The report noted that last year, angel groups primarily invested in small businesses with one to five or six to 10 employees at the time of the investment, accounting for 42 percent and 18 percent of investments, respectively.
“It was angel investors who believed in our mission and invested half a million dollars in our company and using that, we developed our technology and have moved into pilot trials with multiple companies,” said Julie Angus, CEO and co-founder of Open Ocean Robotics. “We would not have been able to scale our company without this early support and mentorship.”
The COVID-19 pandemic has had a major impact on Canada’s entire investment community, as groups have been forced to move their activities online. In May, several angel groups expressed mixed views about the outlook of capital availability during and after the pandemic. NACO conducted a poll of entrepreneurs and investors about capital availability, which suggested capital availability amid the pandemic had decreased and will continue falling.
NACO’s angel activity report made several recommendations to the federal government to support and stimulate angel investing in Canada. The first was to leverage angel investment by creating co-investment initiatives or “matching funds.” The second was to reduce risk by creating tax incentives for angel investors.
The third was to implement securities exemptions to increase the pool of potential angel investors. NACO’s fourth recommendation was to provide more support to the non-profit angel group network to give entrepreneurs centralized and coordinated access to capital and resources.
“To emerge from the economic crisis, Canada needs to activate increased angel capital by an order of magnitude or risk losing a generation of entrepreneurs,” Rojas said.
Canadian pension fund giant Caisse de dépôt et placement du Québec has seen a loss on its investments for the first time since the financial crisis more than a decade ago, hit largely by its exposure to shopping centres amid the coronavirus crisis. Its chief executive sees more pain ahead.
The Montreal-based institution, Canada’s second-biggest pension fund, on Friday disclosed a negative return of 2.3 per cent for the first half of the year – its first decline since the $40-billion, 26-per-cent loss of 2008. Net assets fell to $333-billion at the end of June from $340-billion at the end of December.
In the months to come, the Caisse said it would speed up a pivot to more promising real estate holdings and boost investments in technology companies, in which the pension fund has been underinvested of late. It is also writing down to zero the US$170-million invested in Cirque du Soleil since 2015, but declined to say whether it could come back with partners and make an offer for the insolvent company.
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“This is a historic crisis that is not done yet,” Caisse CEO Charles Emond told reporters on a conference call. “We have difficult months ahead of us. We are hoping for the best but we are ready for the worst and for any situation.
“The markets will remain difficult to predict. We will have to be prudent, rigorous, selective because the next year will be difficult given this economic crisis that is going on and we are not immune to it. If it lasts, good companies could go under.”
The results highlight the scope of the challenge ahead for Mr. Emond, a former Bank of Nova Scotia executive who took over as CEO of the pension-fund manager in early February as global stock markets were climbing to record highs. The coronavirus pandemic has altered the picture completely since, creating deep problems in many sectors of the global economy even as it opens up private-equity buying opportunities.
Exceptional central-bank monetary policies coupled with historic government assistance programs have prevented the recession from becoming a depression, but there is a growing dichotomy between the real economy and financial markets, Mr. Emond said. The pandemic has accelerated certain trends that were already under way, particularly in technology and retail, he said.
Trouble in the Caisse’s shopping-centre investments, intensified by the COVID-19 pandemic as many malls were shut down, contributed to an 11.7-per-cent loss for the real estate portfolio, the pension fund said in a statement Friday. The Caisse said it would speed up plans for each of those assets and shift resources to other market segments, such as warehousing and logistics. The bulk of its shopping centres are in Canada, including Vaughan Mills in the Toronto region and Market Mall in Calgary.
Like other major real estate players, the Caisse’s Ivanhoé Cambridge property arm is facing an extraordinary economic crisis, with malls suffering and the future of office towers coming into question as tech giants such as Shopify and Twitter embrace permanent work-from-home arrangements. Ivanhoé head Nathalie Palladitcheff is trying to whittle down the company’s stake in malls, but she told The Globe and Mail in June that she still has faith in office buildings and wants to increase investments in residential and industrial real estate.
Infrastructure, private equity and credit investments were all bright spots for the Caisse in the quarter. The pension fund has sufficient liquidity to meet the needs of its depositors while supporting Quebec companies and investing opportunistically, Mr. Emond said. He said the pension fund came into the coronavirus crisis with a “defensive position.”
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It might have been too defensive. The Caisse took a major hit in the first half of the year from a loss of 5 per cent in equities, which it pinned on its limited exposure to technology stocks that punched to record highs.
To illustrate the dynamic, shares of the world’s five tech giants – namely Google, Apple, Facebook, Amazon and Microsoft – soared 31.4 per cent during the first half of the year while some 3,000 other stocks tracked by the MSCI All Country World Index fell by a combined 4.8 per cent, the Caisse said. The five companies together now make up about 20 per cent of the S&P 500 index, a concentration not seen since the 1990s, it said.
“Caisse analysts are used to evaluating companies based on historical modelling, weighing things like past cash flow,” said Michel Nadeau, a former vice-president at the pension fund who now works for Montreal’s Institute for Governance. “Now they’re going to have to make a leap of faith. When these companies are such huge fixtures in the index, it’s hard to say ‘I won’t [own them].’ “
Given the tech sector’s increasing economic importance, the Caisse has to “look at it through a new lens, open our minds,” Mr. Emond said.
The Caisse, which operates under a dual mandate to generate returns and contribute to Quebec’s economic development, in March created a $4-billion fund to help Quebec businesses affected by the COVID-19 pandemic. The aid includes loans and lines of credit. About 45 per cent of the funds have already been allocated, the pension fund said Friday.
The pension fund was a 20-per-cent owner in Cirque du Soleil, which filed for bankruptcy protection in late June. A court-supervised process to sell Cirque is now under way, with a credit bid worth about US$1.2-billion from the company’s lenders approved by the court as the offer to beat.
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To succeed in the future, Cirque needs “a strategic operator” among its owners in order to reinvent itself as well as a reasonable level of debt, Mr. Emond said. Whether the Caisse puts more money in play and makes a bid for the company will depend on how things unfold, he said.
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Emond identified two conditions as an “absolute necessity” for the Cirque to succeed — a “strategic operator” with a deep knowledge of the industry, and a smaller debt load.
“It needs a strategic operator to allow the Cirque to reinvent itself, a Cirque 2.0,” Emond said. “It also needs a reasonable debt level. It’s not the best company for high leverage.”
The offer by a group of Cirque debt holders led by Toronto firm Catalyst Capital Group is valued at approximately US$1.2 billion, according to court-appointed monitor Ernst & Young.
Up to US$375 million will be made available to the Cirque, while two funds totalling US$20 million will be set up to pay money owed to former employees and artisans. The agreement also commits to maintain Cirque’s head office in Montreal for at least five years.
“No matter what happens, there’s a minimum value out there which the debt holders have actually agreed to pay, and conditions for maintaining the Cirque here and taking care of various stakeholders,” Emond said. “That’s something you’d never see in a process like that. So there’s a minimum outcome that’s already been achieved.”
Other bidders have until Aug. 18 to submit a fully funded offer that is at least US$1.5 million higher than the creditor bid.
KINGSTON — Eleven local companies are to each receive up to $5,000 in support as part of a micro-investment program.
Kingston Economic Development Corporation’s Starter Company Plus program is meant to fund training, coaching and mentoring for business owners who are launching or have been in business for less than five years.
In the past, the program has awarded seven grants, but the ongoing COVID-19 pandemic compelled KEDCO to broaden the scope of the program’s awards.
“This flexibility has allowed us to reach more businesses in need,” said Ian Murdoch, KEDCO’s business development officer for business retention and expansion.
“I’m pleased to see that we were able to provide some level of grant funding to 11 young businesses this spring.”
Debbie Fitzerman of DFC BBQ Sauce, Jenna Richmond of BSE Skateboarding, Brendan Cregg of Tree of Life & Restoration and Native Plant Nursery, Cynthia Kennedy of Hunter’s Creek Golf Course, Jonathan Zelt of Black Rose Waterproofing Inc., Laura Oomen of Wiggie Wizzle Club, Megan Blay of GreenWell Design Co., Sarah Botros of Yoga LunaSol, Sean Monteiro of Bounce, Suzanne Garrett of Travel Health Experts, and Tammy Watson of Trillium and Maple Woods received funding.
“Building a company is already a daunting feat for many individuals, but when coupled with a global pandemic, it’s exponentially more difficult,” Monteiro said. “The Starter Company Plus program did an incredible job helping Bounce focus on adapting to these unprecedented times and how to continue building a sustainable business.”
Applications for the fall session open on Sept. 1. Details can be found on KEDCO’s website.
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