3 Jan 20221 Comment
2021 marks the first full investment year for Adrenaline Fund which uniquely applies a passive model, fuelled by our startup and angel ecosystem, to early stage investing. Adrenaline Fund was founded in 2020 in cooperation with 2 other sub-funds in the Archangel Network of Funds. Through the vagaries of. the COVID-19 pandemic, 2021. was our first full year of investing fuelled by a remarkable group of Limited Partners who are accredited investors interested in our Purpose.
The entire team at Archangel Network of Funds, and the Adrenaline Fund, is driven by a core Purpose, developed over years of building and supporting early-stage companies. In a nutshell, we want to directly impact Canada’s economic prosperity into the future by:
- Investing in Entrepreneurs who are building the future of the Canadian Economy through Innovation,
- Lowering barriers for accredited investors to participate in, and gain more experience, in early stage investing, and
- Accelerating, and directly supporting, the Canadian Angel ecosystem while enabling Canadian startups to scale up to global leadership.
In this post, I’ll further explore our unique model, an exceptional team, what we’ve done so far, and propose a future where this impact can grow many times larger than our results to date.
The Adrenaline Fund team has unparallelled experience in building companies, mentoring startups and selecting and investing in the next generation of Canada’s tech leaders but at the early stages. In addition to myself, our team includes Benton Leong and Amber French, and is ably complemented by Venture Partner Danielle Graham and the large Archangel Network of Funds team, many of whom are pictured above. Years of strategic business leadership, coupled with some of the most sophisticated selection and investment savvy, are a big part of what makes Adrenaline unique.
MODEL AND WHY IT WORKS
As mentioned, we believe that the Adrenaline Fund model and thesis is unique, at least in Canada, by fusing the power of a passive approach (like an ETF in the public markets) to the early-stage Angel investment ecosystem.
First of all, the investment decision is designed to support the existing Angel ecosystem through a set of rules to govern the investment process. At a high level, the Rules, shared with LPs, stay largely the same but are tuned in response to changes in. the ecosystem. Thus, rather than active decisions, the focus is on tuning the rules and working to ensure that the angel and startup ecosystem remain of high value.
In case some of you think, like a colleague initially did, that such a “blind investment process” is a bit crazy and perhaps akin to wagering on slot machines, nothing could be further from the truth. The secret sauce of Adrenaline is the collective value-add of the ‘qualified lead investors’ who mentor and provide ongoing strategic oversight (e.g. as a board member or board observer).
In fact, research by Brian Smith, Professor of Entrepreneurship and Finance at Wilfrid Laurier University along with global tech investment trends studied by BDC Ventures, shows an almost 25 times multiplier of success for such angel-backed companies. In summary, in generating larger ‘Scale Up’ companies (with valuations reaching US$250M), Canada has a dismal 0.3% track record (or 1 in 300) compared to the 2.5% number for the us (or 1 in 40). Within the Angel ecosystem, specifically GTAN where the study was conducted, an amazing 8% of investee companies reached the $250M threshold. Unpacking the reasons for this incredible out-performance would include factors like: the GTAN selection process, the ongoing value-adds of experienced ‘deal leads’, the strength of the ecosystem support in the Toronto-Waterloo Tech Corridor where GTAN focuses, and syndication with other capable seed/angel stage investment funds.
The bottom line is that, while adding the energy of investment to an existing process that works, Adrenaline Fund is set up for success.
Further, he model is structured to be open and accessible to the greatest number of Accredited Investors by having the aggregate investment staged over 5 equal annual cash instalments (say $250,000 at $50,000 per year). Since the fund is structured to segregate ‘Vintage Years’, and each Vintage aims to invest in 8-10 companies per year, this ensures a diversified portfolio of 40-50 companies at an extremely affordable entry point. The Vintage structure allows new LPs to join once at the beginning of each year, thus growing the maximum amount of each Adrenaline investment and helping startups even more.
Most importantly, the fund attracts investments from individuals who had never been angel investors since it provides deal flow and deal structure for new investors. In other words, we are unlocking new capital to support Canadian innovation.
The portfolio reflects the diversity of innovation in 2021, transcending the software and consumer focus of a decade ago, with more and more patentable intellectual property and deep tech. The 2021 vintage portfolio comprises:
- Artificial intelligence / machine learning (2)
- Enterprise SaaS (2)
- Fintech (1)
- Medical Technology, including Advanced Materials (4)
- Networking and IoT (1)
We are excited to welcome the following companies as our first Adrenaline Fund vintage, reflecting the powerful value-adds of the Angel Ecosystem we support:
Amber, Benton and I are pleased with the successful validation of our passive, rules-based model for Adrenaline Fund and are excited for how this will grow in 2022 and beyond.
Feel free to reach out to any of us to learn more and get involved. We’d love to have you on board.