In order to address some investing gaps, an Ontario-based organization of angel investors is joining a similar organization which operates on a national level.

“Angel investing is really a core critical, non-negotiable part of the ecosystem right now. We see the government’s funding a lot of money into university research that sees $4.5 billion dollars in Ontario, and only two and a half per cent of it gets commercialized,” Mark Lawrence, executive chair of Angel Investors Ontario (AIO) and managing partner of NorthCrest Partners told TechNX in an interview.

The AIO will join the Canadian Startup Capital Association (CSCA) as a member, it announced in a press release.

As he explained, the goal of the pairing is twofold. “To aggregate like-minded individuals who could provide funding and mentorship for new startups in the province of Ontario and thus be able to add value to their community and also seek long-term financial gain from that risk.”

New national investors network

The CSCA itself was just launched, on April 22, and it aims to “strengthen Canada’s early-stage capital ecosystem by helping more people become better investors and by scaling the programs that are already working,” according to its website.

“Canada has the wealth, the founders, and a new generation of investors ready to act. What’s missing are the networks to connect them. If we want more companies to start and scale here, we need early-stage capital infrastructure that reflects the full diversity of this country,” Jesse Wiebe, executive director of CSCA, said in a release.

The new coalition represents more than 3,500 active investors, with more than $750 million in early-stage capital investments and over $3 billion in follow-on capital.

For AIO and Lawrence, joining the group of like-minded investors is a no-brainer.

“In the past I remember being an investor before organized angel groups, and I would have to find the opportunities, do due diligence on them; have an internal argument with myself as to whether I should invest, and then at what price, and then help mentor and monitor that company going forward, and that’s a very time-consuming basis.”

“If you can share thoughts with other like-minded individuals, then it makes your decision process much easier,” he said. “It’s a much more efficient ecosystem for the entrepreneurs.”

As well, by having more direct access to a set of investors, it provides flexibility.

“This makes it much easier to syndicate deals across the groups, if one group doesn’t have the capacity to raise the $500,000 or $1 million that an entrepreneur is looking for,” Lawrence said.

Group responsible for $800 million in funding

The AIO operates as a non-profit, he said and includes “about 21 groups now in all corners of the province, and that’s comprised of about 2,300 angels in those groups. The angels have invested over $800 million since AIO was incorporated.”

The organization was formed 18 years ago. Today, another of its main goals is lobbying governments to help young entrepreneurs.

“Ontario is really one of the few provinces that does not have an investment tax credit for the government’s targeted sectors. Nor does Ontario have a co-investment fund that many provinces have as well,” Lawrence said.

AIO has lobbied the Ontario government to make these changes which will also bring in diversity to the investing pool.

Instead of having large pension funds invest in early-stage companies, “having a co-investment fund might be an easier initiative to start with than having pension funds change their mandate,” he said.

“The co-investment fund incentivized tax credits is amazingly fruitful in B.C. It has had 22 years; it’s seen investments of over $2.2 billion into over 250 startups per year for last 22 years. Ontario represents probably close to 50 per cent of angel investment activity in Canada, and so we really believe that that we need to have a very local presence in our delivery capability of work going forward.”

By teaming up with CSCA, the AIO suddenly has a “much bigger base of advocacy for both the federal and the provincial governments,” he said.

Activity slow for investment community

Today’s environment for entrepreneurs is challenging because of a number of factors, according to Lawrence.

“The current uncertainty in geopolitics, the interest rate environment has added a lot more concern. It has affected valuations after COVID; they came way down again. So, there’s a lot of angel investors sitting on the sidelines.”

Even venture capitalists — who generally invest in a firm after its start-up has been funded by angel investors — are having a tough time. These realities point to the importance of the angel investor community, Lawrence said.

“Right now it’s very important for us to fill up the funnel with new startups at the early stage, but there’s a lot of entities in some different parts of the ecosystem who believe that if they keep funding more money into venture capital funds that they’re thinking they’re funding startups, but that’s really far furthest from the truth. Startups start three years prior.”

Despite the harsh reality, there are some sectors that show great future promise, Lawrence said, such as medical tech and life sciences industries in Ontario.

“I think we have a lot of pharmaceutical companies that could be interesting targets for large biotech companies to purchase going into the next two or three years.”

And one industry is showing a lot of promise, which wasn’t a large part of the Canadian funding atmosphere until recently.

“There are also some very interesting defence innovations, and this is a once-in-a-generation opportunity for a lot of investors to learn about opportunities in defence . . . We can sell it into our defence spend helped by the Canadian government, and going into many products in Europe,” Lawrence said.