At the NACO Summit in Québec City, it was truly humbling to receive the Canadian Angel of the Year Award. I see this partly as a calling to be an ambassador to continue to help raise the Angel bar in Canada in the coming years. I wish to thank all those kind colleagues who, unbeknownst to me, wrote letters of nomination. Also, this is all based on the remarkable people at GTAN and in the Waterloo and Canadian ecosystem generally.
In response to the award, and recognizing the opportunity to build on current success, I shared the following observations and future challenges at the closing Keynote on Friday 3 October, 2014.
“TODAY’S CRITICAL MASS CAN POWER A QUANTUM LEAP”
Closing Keynote NACO Summit, Québec City Friday 2 October, 2014
Bonjours, mesdames et messieurs. Good morning, ladies and Gentlemen.
I hope that Yuri was aware of what he was unleashing by inviting me to share perspectives and future challenges of Angel investing in Canada! Not unlike a startup running on “fumes”, Canada’s angel sector reminds me of the quip from cartoonist Bill Hoest: “I just need enough money to tide me over until I need more”. I’ll start by looking back to help us paint a future directional context.
As Angel investors, we’ve watched a powerful people-driven engine, coming from nowhere, to become a key enabler of Canada’s future prosperity. As Angels, we fuel innovation companies with our capital and mentorship, ultimately creating some of the highest value jobs for 21st century Canada. What’s not to like about that?
Let’s turn the clock back about 5 years. In 2009, the global economy endured the infamous credit crunch, perhaps the worst economic correction since the Great Depression. I observed this to be the final nail in the coffin for a large number of Canadian venture capital firms, for years struggling to generate viable returns. The seeming extinction of venture capital A-rounds and the bleak landscape for young, emerging companies, compelled me, as a seasoned tech investor, to get involved with the founders at Golden Triangle AngelNet (GTAN) in Waterloo-Guelph-Wellington-Stratford area. In a pattern surely repeated across Canada, Angel Groups from a slow start quietly and persistently worked to fill the funding gap through a labour-intensive “syndication” of Angel capital, with other groups and with government co-investment. In Ontario, this meant repurposing MaRS IAF from its origins as a VC on-ramp to co-investment in Angel rounds, lobbying that ultimately led to the Feddev “Investing in Business Innovation” (IBI) program, and BDC convertible notes.
A typical syndication for a top tier investee company might entail half a million dollars of Angel money being spun into $1.5 million or more. I used to describe this approach as providing “half the money of a VC A round for 10 times the effort”. At the time, I imagined this to be a strategy for a short term “bridge” of Canada’s innovation ecosystem to a more sustainable future. How did this market correction turn out for Canadian Angels?
NACO stats show a remarkable growth in total Angel investment. Between 2012 and 2013 alone, Canadian Angel group direct investments grew a stellar 120% from $40 million to $89 million. Of course, this doesn’t capture the aforementioned co-investment leverage that Angel investors attract nor does it cover investments outside of NACO members. All of us rightfully deserve to be proud of such collective impact.
But is it enough? Both from my own international investing and available statistics, it would appear that Canada’s Angel ecosystem is ahead of Europe on the maturity curve. I would estimate Canada has a 3-5 year head start on Europe. On the other hand, our American friends are definitely well ahead in maturity, deal dollars and information gathering. Angel Capital Association (ACA) data shows almost $25 billion of total US angel investment in 2013. To be at this level, on a per capita GDP basis, Canada would need about $2.8 billion of annual Angel investment. Even counting all the leverage, Canadian angel investment needs to grow 5 to 10 times over the coming years just to achieve parity with the US.
In Waterloo, home of Perimeter Institute, we tend to love Quantum Mechanics metaphors. Thus, propelling today’s critical mass through a quantum leap is a mission all of us need to work on collectively and individually, whether as angels, angel groups, NACO, governments, venture capitalists, sponsors, in fact, each and every ecosystem participant.
So, I will conclude by identifying just five of the gaps that we collectively need to fill:
- Scaling: Recently, my friend Steve Currie, VP Strategy at Communitech, observed “Canada is great at starting companies, but not so good at growing them beyond the 5 year horizon.” This means less job creation but also smaller exits. In a study of 183 recent high tech exits versus 2300 comparable US exits, the average US valuation was US$384 million versus US$100 million for the Canadian companies. I don’t know about you, but I find it simply tragic to leave so much value on the table. Angels have a huge role both in mentoring management skills around scaling, but also pivotal to financing that scaling. And, bigger exits, will in a virtuous circle, drive more Angel investment.
- Giving Back: We need more of our successful serial entrepreneurs to become (super) angels and continue to start new ventures. In the Silicon Valley, Paypal alone had 14 serial entrepreneurs like Peter Thiel and Max Levchin whose experience and wealth helped build legends like LinkedIn, YouTube, Tesla, Kiva and Yelp. While we do have a few super angels, we have yet to spawn someone like Ron Conway whose 600 investments include Google, Facebook and Twitter. Canada needs more titans like Mike Volker and Jim Estill.
- Deal Discipline: Great companies grow and scale partly because of external motivations. In the 1990’s the hottest companies all wanted to do an IPO and that involved a playbook of enhanced management, systems and processes that also helped the companies scale into better organizations. VCs also played a part, but today, this role often falls onto Angel investors, hence requiring a more “institutional” approach versus becoming just another retail asset class.
- Co-investment: Government funding has been critical to our success and it is key that funding increasingly backs Angel choices rather than governments having to choose winners. That said, there is plenty of room for more. For example, our Feddev IBI program in Ontario provides a 50% match while the almost identical “Double Equity” program in Austria does a 100% match to angels. And, the Angel Tax Credit, so common internationally, in parts of the US and in BC, would provide a much-needed boost to overall Angel resources.
- Operational Innovation: Currently, most angel groups run as nonprofits using largely committed volunteer deal structuring and with little automation of the process. A big reason for this is Securities Regulations, especially in Ontario, that put a chill on innovations that might trigger an expensive regulatory burden. While there is some hope that the proposed Equity Crowd Funding rules might provide the clarity for such innovations, there is also the risk that this is a force that further pushes deals into a retail mode when what we need instead is more institutional discipline.
With these key points in mind, and assuming the right environment, I have no doubt that greater innovation in business models will fuel growth of a larger and more sustainable Canadian angel landscape. All of us can play our part. To dial up our game, will be an aggressive, yet I believe achievable challenge. And, we need even better measurement so we can regularly monitor, and report back to ecosystem participants, our progress.
The road forward isn’t just about traditional business. Because Angel investors’ motivations uniquely straddle the ever-blurring boundary between “passion capital” and Wall Street-style finance, Angel investing will increasingly be a great exemplar of Social Innovation. To me, the culture of collegiality and sharing resembles my experiences in nation-building around charitable foundations.
The last five years have witnessed an unprecedented expansion of Canadian Angel investing and we are poised for even more remarkable growth in the next five. In the words of the incomparable Alan Turing,
“We can only see a short distance ahead, but we can see plenty there that needs to be done”.
Now, let’s get to work …
In our 3rd year, some exciting changes are afoot as we see our vision for the Prize unfold.
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18 Sep 2016
Who Will Lead Our Institutions’ Response to Climate Change
Even though a life-long environmentalist, looking at the world through my children’s eyes drives home how pressing, and enormous, is the card we have dealt them. That legacy of unprecedented global climate change, leaves little choice between measures to achieve a rapid reversal of climate change or living with global apocalypse.
Personally, I vote for reversal, as one expects would most rational people. However, getting there requires a complete re-think of our lives, and our communities. In my daily life, I see huge opportunities.
Having grown up in Listowel, Ontario, I recently attended the closing ceremony for the Central Public School which will be replaced by North Perth Westfield Elementary School – the difference in the names, previously “Central” to the new “West field” says it all and is illustrated in this map.
Although we all spent time reminiscing about memories and a proud history comprising at least 3 school buildings on the “Central” site, the issue I raise isn’t about heritage. The new school will necessitate a school bus ride for essentially all students. Unlike Central, where most students walked or biked to school, that option will be closed to all but a handful.
Beyond contributing to our climate change crisis, childhood obesity has doubled in the last 30 years (Reference: Centers for Disease Control), mostly as a result of less healthy eating and lack of physical activity. In an age where Physical Literacy and promoting active lifestyles has moved to the top of our agenda, school location should be seen as a contributor to the solution instead of being a major part of the culprit.
Near Elora, Centre Wellington District High School went through a similar “de-centralizing” exercise a few years ago. Groves Memorial Community Hospital is slated to move from its central location near downtown Fergus to a “green field” site (note the prevalence of the word “field” in these decisions) in land between the built up areas of Fergus and Elora. It is notable that the founder of Groves, none other than Abraham Groves was a social innovator of the previous century, who as a doctor pioneering surgical sterilization, did the first successful appendectomy in North America, created hydro power and phone service all to drive change in his home community. I am sure that if Groves were alive today, he would be promoting walkability and carbon footprint reduction.
Urban cores, and small town downtowns, continue to struggle with the appearance of big box stores on the periphery of communities. In addition to often devastating effect on once vibrant centres of community activity, this trend further exacerbates more driving and less walking. Not a good combination.
How do these choices in pubic infrastructure relate to the apocalyptic images of destruction at the top of this post? Climate change is very real with the effects more and more visible, and traumatic as each year passes. Events like the recent Fort McMurray fire, Goderich Tornado in 2011 and severe flooding in the UK can all be traced to the dramatic changes in global climate unfolding over the last few years. The steady, yet gradual increase in the earth’s temperature, leads to greater volatility and severity of weather events. We all know the depressing reality that, horrible as these are, things are going to get worse before they get better.
We used to call the buildup in Greenhouse Gas (GHG) emissions, driven by human activity powered by a reliance on fossil fuels such as oil and coal, Global Warming. It has been rebranded as climate change to reflect the reality that, although the average temperature increases, the main effect is to increase weather volatility. This volatility translates into extreme climate-related events with increasing frequency. Globally, climate change may lead to famines, mass migrations and wars of unprecedented scale and attendant misery.
Faced with this stark reality, you would expect a universal call for governments and public institutions to provide leadership to address climate change?
You would think not, but recent experiences have been been vividly frustrating in showing that, in fact, our public institutions have a long way to go. How are we, as citizens, able to do our part in these circumstances?
First it helps to break down such a massive problem into its constituent parts. To start, let’s quantify the effect that our transportation has on GHG reduction. From data compiled, ironically, by the Canadian Association of Petroleum Producers, transportation is the biggest single sector contributing to Greenhouse Gas emissions, closely followed by Oil and Natural Gas producing industries. Further, Canada has a much poorer record in this regard than other rich nations.
We live in an era when people care deeply about the well-being of future generations. Residential homebuyers are increasingly prioritizing Walkability Scores, which include access to nearby schools in home buying decisions. No generation is more concerned than the Millenials, who have internalized the legacy that climate change will seriously and adversely impact them during their lifetimes. A major way to reverse GHG emissions growth is to tackle personal transportation – to work, schools, hospitals, leisure and shopping.
Collectively, the “M.U.S.H. Sector” (publicly funded organizations like Municipalities, Universities, Schools and Hospitals) has a huge opportunity to take leadership in our current war on carbon. While we might believe that leadership must start at the top with government, without grassroots calls for change the political cost can be too high. (See: CBC News: Politicians Are Green Until They’re Intimidated by the Electoral Price) The challenge will be to empower ordinary folk to drive a climate positive future by taking such thinking from the realm of environmentalists and making it mainstream.
We urgently need an optimistic call to action that citizens can easily embrace. I am working with people that the Elora Environment Centre, an NGO leading innovation and action on the environment, to repackage the Climate Change narrative from one that leaves people powerless, frustrated and even guilt-ridden. We aim to find ways to re-boot the climate change narrative, and unleash a crowdsourced solution coming from the grass roots. Stay tuned. Our planet and our children are counting on it!