What happens when you take a downtown Toronto conference facility, fill it with dozens of top-notch entrepreneurs in search of millions in startup capital, then stir in the high-powered investors who can give it to them? The deafening roar of frenzied deal-making is not the correct answer.
Rather, you get the quiet tension that’s typical of the Canadian Venture Forum (CVF), an annual event that gives the leaders of early-stage companies the opportunity to present their business concepts to investors with two goals in mind: win a trophy for making a great pitch and, more importantly, raise loads of dough.
But the key message from this year’s CVF, which was held in March, came through loud and clear: happy days for angel investors and Web 2.0 firms are here.
Whereas information and communication technology and biotech hopefuls have dominated the CVF roster in recent years, Web 2.0 led the 2007 cohort, comprising 17 of the 57 presenting firms.
“Angel investors are excited about this area,” says Bryan Watson, executive director of the Toronto-based National Angel Organization. “Web 2.0 companies use open-source tools, so they require a lot less capital to build their service. Anywhere from $50,000 to $250,000 will get a Web 2.0 company to market, whereas in the past, Internet firms would have needed $1 million to $2 million.” In other words, angels are a match made in heaven for the second generation of dot-coms.
But the going remains tougher for venture capitalists and the companies who want VC money. Still stung by the tech-market collapse, VCs are notoriously picky about the investments they make. Furthermore, they’re attracting far less money than they used to. Last year, Canadian VCs raised $1.6 billion, down from $2.2 billion in 2005 and a high of $4.5 billion in 2001.
As a result, more entrepreneurs are shifting their funding focus. “We’re continuing to see a rise in demand for angel investment at the forum,” says Sean Wise, chair of the CVF and managing director of Wise Mentor Capital in Toronto. This year, more than one-third of CVF firms presented to angels rather than to VCs.
Among them was Skymeter Corp., which won the CVF prize for Best Angel Company. Based in Toronto, Skymeter produces a palm-sized GPS device that tracks vehicle locations for the purpose of charging road tolls, pay-as-you-drive insurance and congestion levies. “Skymeter is a huge idea, but it’s a hard story to sell to VCs,” says CEO Kamal Hassan. “They’re interested in our potential, but they want proof. They want to see sales and customers.” Because it’s continually creating new versions of its product, the company pursues angels in hopes of securing smaller, more frequent rounds of funding than VCs are able or inclined to provide.
“Companies are realizing they don’t necessarily need $10 million dollars from various VC rounds; they can get to market with a little less money,” says Watson. “It really is the age of the angel.”