Tough times, even for angels

The route by which companies access capital along the way to grow their business is never a straight-forward path that gets everyone to the same place.But the theory might be something like this: first, the three F's (family, friends and fools); second, angel investors; third, venture capital; and fourth, the public markets.

But according to many reports, the venture capital market has dried up.

(We have to go by hearsay, because there really has never been much venture capital to speak of in Winnipeg and since the demise of the Crocus fund, there's been even less.)

But with the Wall Street meltdown in the fall of 2008, heavily leveraged, high-risk investing has pulled back sharply, some say by 50 per cent or more.

Whether that means there are more and better deals for the organized angel investor networks is another story.

According to Randy Thompson, the gregarious head of the Venture Alberta Angel Network, the angels are not necessarily doing more deals.

Thompson, who spoke at the North of 60/Mid-Canada Resource Conference in Winnipeg on Wednesday, made it sound like angel investing is a lot of fun.

(Then again, having a couple of million dollars of mad money to play with probably is fun.)

Ken Cooper, managing director of the Winnipeg Angel Organization, also said his group is not doing any more deals (not that they ever have done many) because in many situations, the angels may be feeling just as hamstrung as every other class of investor.

But Thompson did agree his group of 50 Calgary investors is seeing deals that are further up the food chain.

"Since the VC money has dried up, we are seeing more mature deals with customers and revenues," he said. "Now it is easier for angels but harder for companies looking for that earlier stage money."

Which brings up a whole other series of challenges when it comes to the dynamics of growing an economy like Manitoba's that struggles for growth capital at the best of times.

Local entrepreneurs have to operate in the competitive marketplace just like everyone else in the country and that includes beating the bushes for start-up capital.

Although hardly anybody knows about it, Manitoba does have an investment tax credit program. It is so under-promoted it's surprising to learn its 2009 limit was fully subscribed.

Called the Community Enterprise Investment Tax Credit (CEITC), it gives Manitoba investors in eligible small businesses a 30 per cent tax credit on a minimum investment of $20,000.

To be eligible, companies must have fewer than 50 employees or less than $15 million in gross revenue.

According to Jim Kilgour, director of the province's financial services branch, the 2009 budgeted amount of $33 million was fully subscribed and the $16 million from 2008 was also all taken up.

If nothing else, the secrecy of the program shows resourcefulness on the part of the companies who knew enough to apply to try to raise the equity that's eligible for the tax credit.

But at some point, you would think the province would want to blow that horn a little louder, even if it's only certain types of business and those people who have at least $20,000 to invest that really need to hear it.

The province does partner with the University of Manitoba's Stu Clark Centre for Entrepreneurship at the Asper School of Business in the ever-changing Manitoba Venture Challenge.

While there is not necessarily investment capital at stake for the participants in its current structure, there is valuable, real-world training and mentoring available for companies at various stages of development.

Applications for participation in that event are due Feb. 26 with the best participants having a chance to present at the Banff Venture Forum in front of a group of angel investors.

The whole world is struggling to get out from under a global recession and Manitoba needs to make sure its business development landscape is as well positioned as possible.

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition February 4, 2010 B4