More funds flowing from angel investor funds

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This article was published 11/02/2016 (2996 days ago), so information in it may no longer be current.

No one will ever say Winnipeg is a hotbed of angel investing activity but there’s no denying there’s more money and more deals getting done these days.

 

Late last year, the early stage medical device company, Cubresa Inc., closed a $3.5-million round of financing with most of the funds coming from a Winnipeg angel group called Manitoba Knights.

With its hard-won level of financial stability the company was able to secure a well-connected Boston-based CEO and is probably poised to be able to accept a more substantial round of venture capital financings the next time out.

That a company such as Cubresa — which is developing specialized imaging technology for pre-clinical medical research — could get to this point relying as much as it has on angel funds would have been unheard of five years ago.

Harry Ethans, one of Manitoba Knights’ lead investors, said there is no question they are busier than they’ve ever been in their short history.

Marshall Ring, who runs the Manitoba Technology Accelerator and helped put the Manitoba Knights together, said the number of deals, the dollar value of deals and the number of actual investors has doubled in the past two years.

It may not be hard to produce that pace of growth starting from such a low base. But now there’s at least three organized angel groups in Winnipeg — Manitoba Knights, VA Angels and Rob Warren’s Mean Eyed Cat group — that did not even exist four years ago.

There’s likely more than that out there, but when it comes to angel investment activity, Winnipeg lags even the Maritimes.

But it’s all so very private so no one really knows exactly what’s going on.

That’s something Yuri Navarro, the executive director of the National Angel Capital Organization (NACO), is trying to change.

NACO has been around for about 15 years and in the last couple of years a concerted effort has being launched to try to create a national network of angels so they can co-invest, support, advise and learn from each other.

“We find that often times the approach of investing on your own leads to blind spots for investors that can result in less than preferable outcomes,” Navarro said. “Angel investing has to become more co-ordinated… a more professional activity.”

NACO received $1.5 million from Western Economic Diversification last year to more fully develop a Western Canadian network.

Ethans, Manitoba Knights’ lead investor, said it took about five rounds of financing for Cubresa to get to the point it’s at.

He’s not so worried about professionalizing the process so much as making sure investors realize that the companies they invest in need the kind of care and maintenance that require several rounds of follow-on investment.

He believes that might be more germane in Winnipeg where fundings are smaller than other markets. Ethans said the Manitoba Knights strategy is to close smaller rounds so the company can meet the milestones before the next tranche is invested.

Navarro said nationally the average investment amount has quadrupled in the last five years to about $1 million. It is still much smaller than that in Manitoba.

Among other things, Navarro believes more education is needed when it comes to exit strategies. After all, the ultimate end game for every angel investor is getting a return on their investment.

Ethans said the Manitoba Knights group is not particularly preoccupied with that right now.

“We want to try to build these companies and create some jobs get them going on their feet and become a force,” he said. “Hopefully all the rest of it will take care itself.”

Randy Thompson, the Calgary-based founder of VA Angels, which now has five chapters including one in Winnipeg, has been at it a little longer. With a total portfolio of about 130 deals it has had only 16 exits or liquidity events, as he calls them.

VA Angels have now taken matters into their own hands, forming its own corporate finance arm, trying to manoeuvre their companies into some kinds of “liquidity event”.

With perpetually low interest rates — and notwithstanding the new financial realities taking hold in Alberta — there are even more angels looking to try their hand investing in early stage companies and a retail market is emerging.

VA Angels recently closed a $500,000 fund from smaller-scale angels that will automatically co-invest in deals.

Winnipeg does not lack for great start-ups looking for funding. Neither does it lack its share of high net worth individuals.

With the maturing of the angel sector more of that capital ought to be able to find its way into the system.

martin.cash@freepress.mb.ca