By their very definition, angel investors are invisible - flying beneath the radar and deploying their personal wealth to support attractive start-up opportunities. Like other investment classes, however, angels have common interests and challenges that can benefit from representation and the National Angel Capital Association (NACO) aims to be their primary forum.

After a period during which NACO seemed to have lost its way, the organization is in a rebuilding phase led by a new executive director who's placing a strong emphasis on creating value for its membership.

NACO is currently accumulating data on the profile and performance of angels. It recently released a study showing that so-called "visible" angels invested $82.4 million in 2011 in 134 deals averaging $614,000 per investment. Of the total, $60.5 million were new investments while $21.9 million were follow-on.

tip of the iceberg

The report acknowledges that the activity captured by the report represents just a fraction of overall angel investment activity as the vast majority of angels do not divulge their activities. That prompted NACO to employ an OECD formula that estimates 2011 investments of $916 million — an amount approaching venture capital investment. In 2001, the VC industry invested $1.5 billion, up from $1.1 billion in 2010, according to data from Thompson Reuters.

The report marks the second year running that NACO has compiled data on its membership's performance and the sector's profile. The report surveyed 29 angel groups from across Canada, of which 24 responded (two non-respondents had disbanded). The survey was followed up with telephone interviews with 71% of respondents to clarify information. In addition to providing a second year of data, several new questions were added to the survey, deepening the behavioral and investment profile of the sector.

"The purpose of the study is to be able to have a credible set of data that we can use to inform our best practices and our angels as to what is happening in our ecosystem," says Yuri Navarro, NACO's interim executive director and its former managing director of new business. "We want to be an effective partner to angels to reduce their risk and improve their returns through professional development and co-investment."

Prepared by Global Advantage Consulting Group, the report was supported by Industry Canada and the Business Development Bank of Canada, with the former committed to the report's next annual edition. Navarro says discussions are underway with a variety of regional development organizations and provincial governments to broaden the base of its support as it strengthens its activities outside of central Canada.

NACO found that the vast majority of angel activity captured in the report occurred in central Canada. Ontario and Quebec accounted for 87% of investments in 2011 (accounting for 97% of investment value), followed by western Canada (10%) and Atlantic Canada (3%). The average size of investments was also highest in central Canada at $681,000, jumping to $724,000 when co-investments are included.

top sectors

The top three sectors receiving angel investment in 2011 were information and communications technology (ICT), clean tech and life sciences. Together they accounted for $77.4 million or 93.9% of the investment activity captured in the report.

"ICT is growing the fastest but it's also easy to invest in an IT company. Their valuations tend to be low and their speed of accelerated growth is faster," says Navarro. "But there's also been growth in clean tech and life sciences are being very well supported."

In examining the sector, the report distinguishes between different types of portals — angel groups and angel networks, although the distinction is often foggy. Navarro says angel groups tend to be small local groupings set up to support each other directly. In contrast, angels networks provide mechanisms for investors and entrepreneurs to connect and evaluate opportunities. Angels groups tend to predominate in the US, while networks are dominant in Europe. Canada has strong representation in both categories.

NACO is a network of angel groups but it's also an association. Then there's Anges Québec — the largest group in the country — that often acts more like a network.

That's likely because of all the angel groups and networks across Canada, those in Quebec receive the most government support. Last year, Anges Québec and its 70 angel members received $20 million in the 2011-2012 provincial budget to create the Fonds Capital Anges Québec, which was augmented with $10 million from its membership.

The third and most exclusive grouping is the so-called super angel, defined as high-profile, high net worth individuals who manage deals on their own.

Of the 24 groups that responded to the NACO survey, 15 were established within the past four years. The report says the growth in the number of groups is most likely due to the work of NACO as well as governments that encourage and support new organizations.

Of the angels that belong to a group, 52% continue to make their own investment decisions, while 15% invest as a group. The remainder invest using both approaches.

NACO acknowledges that its membership accounts for only a small fraction of angels active in Canada and no accurate data exists to gauge how many there are. But Navarro says that as NACO builds on existing data, a better picture may emerge.

"We're not making our own estimate but as we get more points of data, we will be able to estimate better," he says. "We're being careful to move forward on a measured basis."

The NACO board met late last month to establish its plans for 2013, lay out plans for the next three to five years and determine both short- and long-term objectives.

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