Wealthy Canadians Go to Boot Camp to Learn How to Hunt Unicorn

  • Shopify's surge lures investors bruised by commodity collapse
  • Young entrepreneurs leery that would-be backers don't get tech

Canada’s technology scene is so hot that investors are going to startup boot camp to learn how to get a piece of it.

About 150 wannabe angel investors last month attended a three-day conference in Niagara-on-the-Lake, Ontario, learning about crowd funding, exit strategies and term sheets. The National Angel Capital Organization put together the event across the Niagara River from Lewiston, New York, for Canadians eager to get in on the burgeoning industry while supporting the next generation of entrepreneurs.

The angels’ interest has been piqued by success stories such as Shopify Inc., whose shares soared after its May initial public offering amid a sea of red in a Canadian equity market battered by the commodity meltdown. The challenge is that many entrepreneurs are leery of taking money from those not steeped in technology.

“They’re, candidly, people who have made money, been successful and then they’re bored,” Daniel Debow, a serial entrepreneur who sold one of his startups for $227 million, and presented at the conference. “I’ve seen it multiple times with people who have good intentions but bad experience.”

U.S. Investors

Angel investments more than doubled to C$91 million ($70 million) from 2012 to 2014, almost all of which has gone to technology and life-sciences companies, according to NACO. The increase mirrors a doubling to $2.4 billion in venture capital investments in the country over the last five years, including from U.S. investors such as Sequoia Capital and Andreessen Horowitz.

Beneficiaries have been companies such as LightSpeed POS, VarageSale Inc. and 500px as investors seek the next unicorn, closely held startups valued at more than $1 billion. The interest comes as Shopify’s shares have jumped 65 percent in the U.S. this year, making it the best performing tech IPO in North America while the resource-heavy Standard & Poor’s/TSX Composite equity index declined 8.4 percent.

Angel training courses have popped up in Silicon Valley to help prepare the dozens of employees who turn into millionaires when a major technology company like Facebook Inc. or Twitter Inc. goes public and want to make investments of their own. In Canada, the startup boom is attracting investors who might not have any tech experience and who would otherwise have backed oil and mineral exploration, said Yuri Navarro, NACO’s executive director.

Angel Textbook

Navarro’s organization is putting together a 22-module course, the first of its kind in Canada, to teach angels the dos and don’ts of early-stage tech investing.

“What we want to do is create an educational platform for professional development,” he said. “Everything from writing term sheets and doing due diligence to good governance and using technology to track investments.”

But the startups aren’t always so eager to take their money.

If angel investors don’t have a background in the tech startup world, they often end up doing more harm than good, said Debow, wearing a hoodie in a crowd of mostly middle-aged investors dressed in suits at the NACO conference.

Sharing Knowledge

Angel investors who aren’t comfortable with technology often try to minimize their risk by asking for expensive deal terms or demanding guarantees about the future of the business that aren’t realistic, Debow said. Overzealous angels can end up taking too much of a founder’s time, distracting them from running the startup, he said.

Debow is part of a growing group of Canadian tech entrepreneurs-turned investors, including PlentyOfFish Media Inc. founder Markus Frind and Hootsuite Media Inc. CEO Ryan Holmes, that are building their own network of angels modeled after Silicon Valley’s close-knit community.

The most promising startup investments are getting scooped up by professional tech investors -- often from the U.S. -- before inexperienced angels even hear about them, said Debow, who’s also an angel investor.

“Don’t think you’re so clever if you’ve got this deal where there’s no competition, it’s a good signal that it’s probably not a great deal,” he said.

There’s still room for angels who don’t know a lot about tech, but bring other business experience, said Karen Grant, executive director of the Angel One Investor Network. By banding together and sharing knowledge and networks, inexperienced angel investors can make up for their disadvantages, she said in an interview at the conference.

Come Together

“There’s always risk, but there are lots of opportunities, great opportunities to be had,” Grant said. The majority of her group has a connection to the tech world, so when an inexperienced angel joins they’re able to provide training and mentorship.

In 2010, some of the angels in Grant’s group invested in a little-known messaging app called Kik Interactive Inc. from Waterloo, Ontario. This past August, Kik scored a $1 billion valuation after receiving a $50 million investment from Chinese tech company Tencent Holdings Ltd.

Navarro said he often hears the back-and-forth between older investors and younger entrepreneurs who both say the other group doesn’t know what it’s talking about.

“Wealthier angel investors complain a lot about the young guys who think they know it all,” Navarro said. Then the young entrepreneurs complain about the older investors who don’t get the technology, he said.

“Both are right to a certain extent and both have a lot to learn from each other,” he said.

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