The trouble with angel investors: Startups still struggle to access capital from local investors
Regional investment fund targeting ex-pat investors, looking for promising upstarts
While the New Brunswick startup community is growing – leagues ahead of where it was before companies like Radian6 and Q1 Labs put the region on the map for outside investors – unrealized promise remains, industry leaders say.
"There is capital here," said Larry Shaw, CEO of Ignite Fredericton and Knowledge Park.
"We don't have all the tools and assets or capital investments that we need in this province to meet the full potential."
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Now two East Coast organizations, Invest Atlantic and Springboard, are hoping to attract angel investors, generally an already rich investor who puts money into a company, to startups in the region.
Jointly they've created the Investment Opportunities Program and hope to raise $500,000, which they they can divide among a number of promising companies.
"Over the next month we'll be asking startups in Atlantic Canada to apply," said Bob Williamson, who founded the company that owns Invest Atlantic.
Along with Springboard, Williamson's company has begun to look at external investors, including ex-pat East Coasters, looking to invest back into Atlantic Canada.
I think if you had 100 New Brunswick companies with stellar ideas, I think all 100 would find the money.- David Shipley
He thinks there are a good number of angel investors present in the four provinces, but "'how many of them are truly active and how many of them are truly interested into some of the businesses that are out there that need investment? –That is really the question I need to keep asking."
It's a question that has long bedeviled the New Brunswick economy – how to attract smart money and generate economic growth from within.
Looking for investors
David Alston, former executive of Radian6 and now chief entrepreneur in residence for the provincial government, estimated that a surge in startup investment could amount to hundreds of millions if not billions for the provincial economy.
But local investors need to be educated in what a startup can do, what angel investors serve to gain and how big businesses use these small enterprises to pump innovation into themselves, Alston said.
Angel investors can be the first major drop in a development team's can that helps get it off the ground.
"It's not necessarily as well known in this region," he said. "Because of that, we don't have as many qualified angels right now."
"However, if the question was, 'do we have enough capital in the region to fund as angels or fund startups?' Absolutely."
Enough to go around
Startups are a risky investment, he said, only one or two out of 10 viable startups will be profitable.
The hope is the successful ones pay it back, but Alston said financial advisors don't recommend these investments because there's no cut for them.
Ross Finlay, CEO of the First Angel Network, a group that showcases promising fledgling companies to investors, said the number of viable investors in Atlantic Canada – those with enough loose "Vegas money" to invest in a startup – is roughly 2,000 people.
He said the number of those who actually invest is 10 per cent, or 200 people.
But those numbers are growing, Finlay said, and New Brunswick investors he works with actually seem less averse to risk than the conservative East Coast stereotype.
David Shipley, president of the successful startup, Beauceron Security, believes there's enough money here to go around; and if a business can't attract investors, that's just how the free market works.
'The problem is, quite frankly, is later on for a company. After they get what's called their, 'minimal viable product.'- Gerry Pond
"I think if you had 100 New Brunswick companies with stellar ideas, I think all 100 would find the money," he said.
Likewise, Gerry Pond, chairman and co-founder of Mariner Partners Inc. and several successful startups, said what is holding back the startup community isn't a lack of early-game investors, it's late-game venture capital.
"Angel investors only take the company for the first few years," said Pond, a retired NBTel executive who later founded and invested in both Q1 Labs and Radian 6. "Angel investors and friends and family."
'Shouldn't be a problem getting started'
A number of private businesses, mentorship programs and provincial and federal government funds are allocated to help these small ventures, Pond said.
"There shouldn't be a problem getting started," he said. "The problem is, quite frankly, is later on for a company. After they get what's called their, 'minimal viable product.'"
He said growth, after a company has customers but wants to go to the next level, costs money. That's when a startup needs professional money to swoop in.
"That's where we have the problem in Atlantic Canada," he said. "And across the country."
Alston said if an idea is stellar, the market is vast and the team is solid, a startup will find the money it needs. It's those ideas that need more R&D or target a niche market that suffer.
It's like selling your home, he said.
"If your house is priced higher than the typical average house in the market, it's going to take a little longer."