Angel investors of a feather band together: Used to fly solo: Groups With names like Prairie Angels, Band of Scoundrels, Purple Angel Mon 30 Jun 2003 Page: FP5 Section: Financial Post: Canada Byline: Mark Evans Source: Financial Post One of the more intriguing trends within the Canadian angel community is the creation of formal groups. Armed with eye-catching names such as the Prairie Angels, Band of Scoundrels and Purple Angel, these groups pool their money, experience and expertise. They aim to mitigate risk by filtering potential deals more effectively and doing more in-depth investment reviews. They can also make larger investments because financing can be spread among many investors. "It's a sign of maturity but it's a sign that [angel investing] is not easy to do," said Rob Safrata, who has been involved in angel financing since 1989. A big part of these groups, he added, is the social component. "They want to talk to each other about it, not with lawyers or accountants. They have fun,they enjoy it. It is very different from a VC's meeting." In a sense, these groups have transformed angel investors into mini-VCs. Their formal structures and processes contrast with the traditional angel who often invested in a company if it captured their imagination. This more disciplined approach and higher benchmarks can make it more challenging for start-ups to get angels onboard. A torchbearer for angel groups is Ottawa's Purple Angel, which consists of seasoned high-tech entrepreneurs who used to work at Bell Northern Research. Purple Angel has two investment strategies: It puts around $150,000 into early-stage companies that do not need a lot of money to break even but can't attract VCs; and it co-invests with VCs in larger seed rounds of $750,000 to $1-million. Irving Ebert, one of Purple Angels' eight partners, said one of the group's strengths is its ability to bring decades of industry experience to portfolio companies. This, he said, makes Purple Angel a valuable partner with VCs who do not have the resources to work with early-stage companies. "Why do VC partners let you in along for the ride on the same terms?," he said. "We invest a lot of effort they don't. What VCs need is active angels. Many classic angel investors are passive. In my view, the main value-add of angels in the eco-system is expertise, not money." Mr. Ebert said it is important that angels work together by networking and creating organizations to share ideas. Purple Angel is also working with other angel groups to make investments. The group recently completed a seed round with the Band of Scoundrels involving Recognia Inc., which makes chart pattern recognition and price forecasting software. Another side of the angel community's move towards a more organized structure is the creation of the National Angel Organization last year. The non-profit NAO arose from an Angel Investor Summit in 2001 to look at the macro-issues that help make angels successful such as political
stability, currency value, the strength of the education system and the tax structure. "When we had the summit and had 100 people together, we realized who was in the room and we realized we could make a difference," said NAO chairman Henry Vehovec, who played a key role in the group's establishment. The NAO has a mandate to provide angels with skills to find and assess investment opportunities, collect and disseminate best practice methodologies, and lobby for political change by providing different levels of government with information about ways to encourage business creation and provide investment incentives. One of the key issues is convincing the federal government to give angel investors tax credits for investing in start-ups. This program would provide an incentive for investors to finance high-risk ideas. If these ideas are successful and investors reap a profit, the federal government would benefit from the creation of jobs and capital gains taxes. Adam Chowaniec, chairman of the Information Technology Association of Canada, said the federal government could administer a tax-credit program by using the same rules and bureaucracy as the successful Scientific Research & Experimental Development program, which gives companies tax credits for research and development expenses. "Given that technology growth over the next couple of decades will be the next economic generator in Canada, we should try to address this issue," he said.