Billions With Zero Knowledge - Austin Hill, Entrepreneur & Angel Investor

Instead of trying to answer the Aquinas like epistemological question of how many angels fit on the head of a pin, this post is about the changes that are occurring in the Canadian angel community for high-tech startup funding.

For a community of angel investors to be effective, there needs to be a density of intensity that creates, attracts and supports healthy deal flow and investment activity.  This density of intensity acts like a vacuum drawing entrepreneurial talent, mentorship, other investors and VCs providing a series of experiences and market data on what is working.  We see which deals & people attached to deals are worth re-investing in and it helps create the proper farm system for later stage investing and success.

Done right it creates a system that achieves escape velocity and can continue with its own momentum giving birth to many high tech success stories, that in turn feed talent, capital and mentors back into the community.

Historically there have been a lot of problems with the various attempts to organize the angel community in Canada.

While not the only example, a visible sign of these problems was the Toronto Angel Group and Toronto Venture Group suspending operations.  I only had cursory run-ins with these groups, but I know from many other angel investors and entrepreneur friends that these organizations failed to galvanize the community and service either the angel or entrepreneur communities effectively (despite a lot of volunteer effort by many people I respect and consider friends).

A healthy angel community that provides such a farm system for venture investors is becoming even more critical in todays market where rapid development and the lower cost of building web applications puts most deals below the venture capital radar. 

There is currently an oversupply of early stage capital in Quebec, with more then a billion dollars of new venture capital going into VC coffers in the last 5 years targeted at early-mid stage investing. Despite this we do not have enough companies reaching the threshold of being ‘venture ready’ to access this capital.

There are many exciting developments occurring in the Canadian early stage technology community, with Montreal seeing it’s fair share of that activity.

Beyond Montreal across Canada I’m seeing the seeds of an active community of early stage angel investors. One such example is the new Toronto-based angel group Maple Leaf Angels who are building a community of angel investors and have been quite active in doing deals in Toronto.

The National Angel Organization is working to focus some of this activity and last year published a great reference document on creating angel groups. Bryan Watson and Daniel Mothersill are actively helping seed and advise networks of angel investors on banding together.  People interested in angel investing (either from the point of view of an entrepreneur, or investor) can check out their document of best practices that explains many of the in’s and out’s of angel investing.

The role of angel investors is critical in Canada’s innovation ecosystem, and one that has been often overlooked.

Randy Komisar (entrepreneur, VC partner with KPCB and author of a great fable on high tech startups, The Monk & the Riddle) in this interview with Brown Hen points to a critical aspect of the Silicon Valley culture of innovation.

Successful people also reinvest in innovation; they want to be a part of the next big thing; they want to help mentor, guide and support aspiring entrepreneurs. This reinvestment is probably the most significant reason Silicon Valley is so prolific in terms of innovations.

To create this community we need to bring together the entrepreneurs and angel investors from successful companies that feed the density of intensity (i.e. Lot’s of deals with experienced mentors occurring quickly within the same geographic area).  Some of these deals with fail, but if the pace continues and a few succeed we will begin to see more of a cohesive investment, talent and technology community emerge with all the benefits that other geographic centers of technology innovation have created (NC-Raleigh, Denver, Israel and some of the activity out of Europe all come to mind).

This ecosystem also requires successful exits.  What would happen if Canada had a bunch of exists like Club Penguin (In the Gaming industry, Canada has a critical mass of talent and an ecosystem that we should be seeing more independent web-based game developers going out on their own)? What if we had a number of web-based exits like Flickr & StumbleUpon that find the mentorship, capital & management talent in Canada without choosing to go to the Valley?

That is what the valley has developed over the last 50 years, a very focused and rapid cycle of innovation & failure that creates expertise, learning and reached a critical mass of activity to achieve its own velocity to support new innovation.

This is not going to occur overnight.  It will take time, and the work of many dedicated individuals willing to put their own money, time and effort into building the communities of innovation that attain their own escape velocity.

This is not something any single person can do (people with more resources, time & experience than I have tried). My own contributions need to be measured given that I have a startup working towards launch and another team I support as Chairman & co-founder having just launched.

On my own part creating successful, high profile projects that our teams, investors and the community can be proud of is part of how I can best contribute to this ecosystem.  Given my focus on these projects, I’m no longer doing any direct new angel financing deals for the foreseeable future.

I am however involved in a number of initiatives to help support this type of ecosystem.

I am involved as an investor, and on the board of directors of Montreal Startup, a new early stage investment fund comprised of angel investors as the limited partners.  I am also serving on the board of directors of Les Anges Quebec, a new angel network being created in Quebec. 

With the help of my friend & local angel investor Patrick Lauzon, we organized & hosted a dinner called Founders & Funders last fall to bring together VCs, Angels and Entrepreneurs. This event was also held in Toronto, hosted & organized by Jevon McDonald and David Crow.  We are going to be hosting more of these across Canada with the help of other local groups.

I’ll be posting more details on these initiatives over the coming months.  Each initiative approaches the problems of early stage funding, creating exciting opportunities in different ways, but I feel they are all complimentary and provide me with an outlet to support early stage entrepreneurship while allowing me to stay focused on my day job

On Sun 24 Feb 2008.