The Survival Rate of Startups Funded by Angel Investors

I-INC WHITE PAPER SERIES: MAR. 2019

March 30, 2019

Dr. Kenneth A. GrantDr. Martin CroteauOsama Aziz Ted Rogers School of ManagementRyerson University

PREPARED BY:

Table of Contents

1. Introduction

2. Survival Rates: Fact vs. Fiction

3. Methodology

3.1 Data Source

3.2 Supplemental Data

3.2.1CorporateProfiles

3.2.2SurvivalRates

3.2.3EconomicModels

4. Results

4.1SurvivalRates

4.1.1SurvivalRatesbyAge

4.1.2SurvivalRatesbyIndustry

4.2EconomicImpacts

4.2.1ContributiontoGDP

4.2.2JobCreation

5. Implications

6. Future Work

7. Partners

8. References

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1. Introduction

In developed and developing economies, governments and policy-makers seek to encourage the creation of new firms in order to drive economic development and growth, and to create jobs. In 2013, the Government of Canada spent over $5.4 billion on federal tax and spending programs that support small businesses and entrepreneurship (Carey, Lester, & Luong, 2016).

SinceSchumpeter’searlywork(Schumpeter,1934),theimportanceofentrepreneurshiptoeconomieshasbeenwell-established,withentrepreneurialinnovationanddisruptionseenasamajorcontributortoeconomicgrowth.

Whiletheimportanceofnewfirmstothegenerationofwealthmayseemobvious,itmayseemthatthereislittlelogicingovernmentencouragingthecreationoffirmsifthosefirmsdonotsurvive.But,itcouldbearguedthatevenfailedfirmsareaninvestmentintheentrepreneurialcapacityoftheirfounders,whichcouldleadtofuturesuccessandanimprovementinCanada’sentrepreneurialculture.Thus,itisclearlyineveryone’sbestinterest−entrepreneurs,employees,investorsandsocietyatlarge−formorenewventurestosurvive.

Thisbegsmanyquestions:Howmanystartupssurvivetobecomesuccessfulfirms?Whydosomestartupssurvivewhileothersdonot?Whatcanpolicy-makersdotoimprovethesurvivalrateofstartupsoverall?

Astartupmaynotsurviveforseveralreasons.Forexample,thefoundersmaydecidetonolongerpursueagivenopportunitybecauseofchangingmarketconditions,dynamicswithinthe

foundingteam,personalreasonsorotherfactors.Alternatively,andperhapsmorerelevanttothispaper,astartupmayceasetooperateduetoalackofresources(GlobalEntrepreneurshipMonitor,2016).Putmoreplainly,foundersgenerallystoppursuingagivenopportunitywhentheyrunoutofoperatingcapital.Thiswouldsuggestalinkbetweenthesurvivalrateofnewventuresandaccesstocapitalandotherresources(Coad,Frankish,Roberts,&Storey,2016).Finally,insomecases,thestartupmay beacquiredbyanotherbusinessandceasetoexistasanindependententity.

Notwithstandingthevariousgovernmentfundingprogramsaimedatsmallbusinessesandentrepreneurship,moststartupsarefundedthroughprivateinvestmentmadebytheentrepreneursthemselves,byfriendsandfamily,orbythird-partyinvestors(StatisticsCanada,2018).High-potentialstartupsthatdemonstratethepotentialforexponentialgrowthmaybesuitableforequityinvestmentbyangelinvestors(angels)andventurecapital(VC)firms.VCsinvestotherpeople’smoneyandaretypicallyrequiredtoreportontheiractivities.Therefore,theroleofVCsinthestartupinvestmentecosystem,andtheperformanceoftheirinvestments,isgenerallywellunderstood.

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Angelsareprivateindividualswhoinvesttheirownmoneyandoftenoperateinformally(Wongetal.,2009).RelativetoVCs,angelsaregenerallybelievedtoinvestearlierinthelifeofastartupandtoinvestsmalleramounts.Yet,thetotalstockofangelinvestmentintheeconomyisbelievedtobemanytimeslargerthanthatofVCinvestment(Riding,2008).Basedontheangels’experienceandnetworks,manyangelsalsoprovidestartupswithhelpaccessingpotentialcustomersorwithoperationalmatters.Doestheaddedvalueprovidedbyangels,ortheearlierstageatwhichtheyinvest,leadtohighersurvivalorgrowthratesforstartups?

Despitetheimportanceofangelsintheinvestmentecosystem,littleisknownabouttheiractivitiesandtheperformanceofthestartupsinwhichtheyinvest−asignificantgapinknowledgeofthisvitalinvestmentactivity(Mason&Harrison,2008).ThisisparticularlyapparentinCanada,whichlacksempiricalresearchinthisarea.

Thegoalofthispaperistofillpartofthatgapbyinvestigatingthepost-investmentsurvivalratesofCanadianstartupsfundedbyangelinvestorsandcomparingthemtothegeneralpopulationofstartupsintheeconomy.

Does the added value provided by angels, or the earlier stage at which they invest, lead to higher survival or growth rates for startups?

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MuchconflictedinformationhasbeenpublishedonstartupsurvivalratesinCanadaandaroundtheworld.Tradepublications,popularnews andconventionalwisdomwithintheinvestmentcommunitysuggestthatthesurvivalrateof newfirmsisverylow.Survivalratesof1in10 areoftenquoted.

Forexample,apopularTechvibes(2013)articleclaimedthattechstartupsposta90%failurerate,andinsupportofitsclaim,itquoteddatafromaMashablearticle.Inturn,theMashablearticlequotedanobscureinfographicthatwasnotreferencedandcouldnotbeverified.AnarticleinTheIndependent(2014)suggestedthatasmanyas9outof10newbusinessesintheUnitedKingdomdonotsurvivepasttheirsecondyearofoperationbasedonasurveyofonly60startupsthatweresupportedbyan

incubatororaccelerator.Theseexamplesillustratethetendencyofsomepublicationstodrawconclusionsonstartupsurvivalratesbasedonlimited or anecdotal evidence.

Acloseexaminationofdatafromgovernmentagenciesandpeer-reviewedacademicstudiestellsaverydifferentstory,withsurvivalratesinCanadaandothercountriesaveragingover90%afteroneyear,tobetween30–50%after10years.AccordingtoaseminalreportcommissionedbyIndustryCanadaonthestateofentrepreneurshipinCanada(Fisher&Reuber,2010),between85–87%ofnewCanadianbusinessessurvivepasttheirfirstyearofoperation,while62%existafterthreeyears,and51%makeitpasttheirfifthanniversary.AsshowninFigure2.1,survivalratesappeartoberemarkablyconsistentamongmanydevelopednations.

2. Survival Rates: Fact vs. Fiction

Figure 2.1: One-year Survival Rate for 2005 Source: Fisher & Reuber (2010)

90%average survival rate in Canada after one year

30–50%survival rate after 10 years

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Survivalratesalsoappeartoberelativelystableovertime,regardlessofeconomicboomsorbusts(BureauofLaborStatistics,2018).However,asshowninFigure2.2,morerecentevidencesuggeststhatsurvivalratesinCanadahave“exhibitedasteadyandgradualincreasefrom2002to2014”(IndustryCanada,2018).Intheperiodfrom2002to2011,three-yearsurvivalratesimprovedfrom75%to82%.ThissameIndustryCanadastudyfoundhighersurvivalratesamongfirmsthatlaunchonalargerscale.Anaverageof23%ofnewfirmswith1–4employeesfailedwithinthefirstthreeyears,comparedtoanaverageof14%ofnewfirmswith20–99employees.

Whythediscrepancybetweenthesurvivalratesreportedbyentrepreneursandinvestorscommonlyfoundintradepublications,andthosereportedbygovernmentagenciesandacademic studies?Twopotentialreasonsarerelevanttothispaperand worthyofdiscussion.

First,therearedifferencesinthesamplesusedtoderivethesestatistics.GovernmentdepartmentslikeIndustryCanadapublishthesurvivalratesofallincorporatedfirmsinCanada,orofverylargerepresentativesamplesoffirms.ThevastmajorityofincorporatedfirmsinCanadaaresmallbusinessesthatwouldnotbeappropriatecandidatesforangelinvestmentorventurecapital.Ofthe1.2millionsmallbusinessesinCanada,only1.9%receiveangelinvestmentorventurecapitalfunding(StatisticsCanada,2019).ItisconceivablethattheriskprofileofthisminuteproportionoffirmswouldbedifferentfromtheCanadianaverage,leadingtoalowersurvivalrate.

Figure 2.2: Average Survival Rate by Goods and Services Sector Source: Industry Canada (2018)

Recent evidence suggests that survival rates in Canada have “exhibited a steady and gradual increase from 2002 to 2014”.

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Second,howsurvivalisdefinedandothermethodologicaldifferencescouldfurtherexplaintheseinconsistencies.Forexample,Headdetal.(2003)foundthatapproximatelyone-thirdofbusinessesthatclosedweresuccessfulatthetimeofclosure.Insuchcases,theclosuresmayhaveresultedfromtheretirementofthebusinessownerortheacquisitionofthefirm.Therefore,thesefirmsmaybeincorrectlyincludedasfailuresinsomedatabasesorstudies.Moreover,somestudiesonstartupsurvivalratesonlyincludedfirmsthatreportedemployees(Fisher&Reuber,2010),whileotherstudiesincludedallfirms(IndustryCanada,2018),whichcouldalsoleadtoconsiderablydifferentresults.

Insummary,thereareseveralreasonswhythesurvivalratescitedbygovernments,academicsandinvestorsmaydiffer.Therefore,itwouldbereasonableforaninvestigationofthesurvivalrateoffirmsfundedbyangelinvestorstobeconsistentwiththelowsurvivalratesclaimedbyinvestorsintradepublicationsratherthanthehighersurvivalratesfoundingovernmentreportsandacademicliterature.

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3. Methodology

ThequestionofsurvivalrateswasinvestigatedusinghistoricaldataonCanadianfirmsthatreceivedoneormoreinvestmentsfromangelinvestorsoveraperiodofsevenyears.Thisdatawassupplementedwithadditionaldatacollectedfromseveralsourcestocreateauniquedataset.

3.1 Data Source

ThispapermadeuseofdataprovidedbytheNationalAngelCapitalOrganization(NACO).NACOistheonlynationwideindustryassociationforangelinvestorsinCanadaandhasrecentlyextendeditsmembershiptoincludeincubatorsandaccelerators.NACOrepresentsover40angelinvestmentnetworkscomprisedofover4,000angelinvestorsacrossthecountry.NACO’sdataencompassedtheperformanceof775startupsinCanadathatreceivedfundingfromNACOmembersfrom2010to2016.Thedataonthesestartupswasself-reportedtoNACObyitsmembersthroughanextensiveannualsurvey.

TheNACOsampleincludesstartupsthatareoperatinginseveralindustrysectors.Figure3.1showsthedistributionofstartupsbyindustry.

Informationandcommunicationstechnology(ICT)wasthelargestsectorrepresented,with 44%ofthestartupsinthesample.Thiswasfollowedbythelifesciencessectorat15%. Severalsectorshadarelativelysmallrepresentationinthesample,includingcleantechnologies(6%),manufacturing(5%),theservicesector(4%)anddiversifiedconsumerproducts(1%).Aconsiderablenumberofstartupscategorizedtheirindustrysectoras“other”(25%).

Figure 3.1: Startups by Industry Sector Source: National Angel Capital Organization (NACO)

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Thestartupsinthesamplereceivedfundingfromangelinvestorsatdifferenttimesbetween2010to2016.Figure3.2showsthedistributionofthesamplebytheyearinwhicheachstartupreceivedtheirfirstangelinvestmentbyaNACOmember.Insomecases,theyreceivedseveralinvestmentsduringthatperiod.

ParticipationinNACO’sannualsurveyhasincreasedsteadilysince2010.Therefore,thedatainthesampleisskewedtowardsmorerecentyears.Almosttwo-thirds(63%)ofthestartupsinthesamplereceivedangelinvestmentfrom2014to 2016.

Figure 3.2: Startups by Year of Angel Investment

Source: National Angel Capital Organization (NACO)

3.2 Supplemental Data

TheNACOdatawasthensupplementedwithsecondarydatacollectedfromseveralpublicly-availablesourcestodeterminewhethereachofthe775startupswasstillinoperation.Extensivesearchesforcompanywebsitesorotheronlinereferenceswereconductedforeachstartup.OnlinedatabasessuchasBloomberg1 and Crunchbase2weresearchedforcorporateprofileinformation.ToolssuchasWaybackmachine3 wereusedtoaccessarchivedonlinecontent

relatedtoseveralfirms.Ifnoreferencetoafirm’soperationwasfoundusingthesesources,itwasassumedthatthefirmwasnolongeractive.Somefirmsthatwerenolongeractivemayhavebeenacquiredbyanotherfirmratherthanhavingfailed.Reasonableeffortsweremadetoexcludethembysearchingpubliclyavailableinformationregardingacquisitions,suchaspressreleases.

1Bloombergdeliversbusinessandmarketnews,companyprofiles,dataandanalysis. 2Crunchbaseisanonlineplatformforfindingbusinessinformationaboutprivateandpubliccompanies. 3Waybackmachineisanonlinewebsitewith347billionarchivedwebpages.

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3.2.1 Corporate Profiles

Corporateprofiledatabasesandothersecondarydatasourceswerealsoused todeterminesalesrevenueandemploymentforeachstartup.Corporateprofiledatawascollectedprimarilyfromtwosources:MergentOnlineandZoomInformationInc.

3.2.2 Survival Rates

Overallsurvivalrateswerecalculatedastheratioofthetotalnumberofactiveandnon-activestartupsintheNACOdataset.Annualsurvivalratesrepresenttheratioofthenumberofactiveandnon-activestartupsbasedontheyearinwhichthefirmfirstreceivedangelinvestment.Survivalratesbyindustryrepresenttheratioofthenumberofactiveandnon-activestartupsineachoftheindustriesreported.Startupsmayhavebeeninoperationforseveralyearsbeforereceivingtheirfirstinvestment.

3.2.3 Economic Models

Nationalinput-outputmultipliers,asshowninTable3.1,wereusedtoestimatetheindirectandinducedeconomicimpactcreatedbythestartupsintheNACOdataset.Directimpactsincludedthestartup’ssalesrevenueandjobscreated.Indirectimpactsincludedsalesrevenueandjobscreatedinthestartups’valuechain,suchassuppliersandothercompanies.Inducedimpactswerethosecreatedwhenstartupemployeesspenthouseholdincomeintheircommunities,thuscontributingtotheirlocaleconomies.Specifically,thisstudyestimatedthecontributionofthestartupsintheNACOdatasettoCanada’sgrossdomesticproduct(GDP)andjobcreation.

Table 3.1: Economic Multipliers Source: Statistics Canada National and provincial multipliers, 2010

Multiplier Indirect Impact Induced Impact Total Impact

Sales Revenue 0.54 0.42 1.96

Jobs Created 0.66 0.47 2.13

Adjustedversionsoftheinput-outputmultipliersdevelopedbyStatisticsCanadafor2010wereused,whichwasthefirstyearrepresentedinthispaper’sdataset(StatisticsCanada,2014).Sincedifferentmultipliersapplytodifferentindustrysectors,themultiplierswereadjustedtoreflecttheweightedsectordistribution ofthestartupsintheNACOdataset.

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4. Results

Active: 537 (69%)

Not: 238

(31%)Figure 4.1: Survival Rates of Firm Source: National Angel Capital Organization (NACO)

4.1 Survival Rates

Atotalof775startupswereincludedinthestudysamplethatcamefromNACO.AsshowninFigure4.1,69%(537startups)werestillinoperationin2017,while31%(238startups)werenolongeractive.Becausethesampleincludedfirmsacrossvariousindustrysectorsandofvaryingintervalsoftimeelapsedsincereceivingangelinvestment,thesurvivalrateswereexaminedfromeachoftheseperspectivestoprovidegreatercontext.

Thispaperinvestigatedthesurvivalratesofangel-fundedstartupsmeasuredfromtheyearinwhichtheyfirstreceivedinvestmentfromaNACO-affiliatedangelinvestor.Thesurvivalrateswerethencomparedtotheempiricalresultsfromotherstudiestodetermineanysimilaritiesordifferences.

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4.1.1 Survival Rates by Age

Basedontheresultsofpreviousstudies,whichwerediscussedinSection2,itwasexpectedthatthesurvivalrateofstartupswoulddecreaseastheelapsedtimesincetheyfirstreceivedangel

investmentincreased.Figure4.2showsthetotalnumberofactiveandnot-activefirmsasof2016basedontheyearinwhichthestartupreceivedangelinvestment.

Figure 4.2: Survival Rates by Age Since Angel Investment Source: National Angel Capital Organization (NACO)

Indeed,theresultsfromthispaperconfirmthatthesurvivalratesofstartupsthatreceivedangelinvestmentgenerallydecreasedovertime.Withtheexceptionof2011and2014,thesurvivalratesofstartupsdecreasedconsistentlyovertheelapsedtimesincefirstreceivingangelinvestmentintheperiod from 2010 to 2016.

Thestartupsinthisstudy’ssamplehadaone-yearsurvivalrateof79%.Thisresultismarginallylowerthantheone-yearsurvivalrateofbetween82-85%foundbyFisher&Reuber(2010)intheirreportcommissionedbyIndustryCanada.However,itissignificantlylowerthanIndustryCanada’smostrecentreportthatfoundanaverageone-yearsurvivalrateof98%fromtheperiodbetween2002and2011(IndustryCanada,2018).Thisdifferencemaybeattributabletothefirmhavingafoundingdatethat

wasearlierthanwhentheangelinvestmentwasmade.Despitethedramaticdifferencesintheseone-yearresults,thethree-yearsurvivalrateof78%foundinthispaperisidenticaltothatfoundinIndustryCanada’s(2018)report.Yet,itisconsiderablyhigherthanthethree-yearsurvivalrateofbetween62–65%foundinFisher&Reuber(2010).

Thefive-yearsurvivalrateof54%forthestartupsinthissampledippedunexpectedlybelowthetrendfromotheryears.Thereasonsforthisdifferenceareunknown.Theresultsareinlinewiththefive-yearsurvivalrateof51%foundbyFisherandReuber(2010)butwellbelowthe63%foundbyIndustryCanada(2018).Thedifferencesareevenmorenotablebetweentheseven-yearsurvivalratesof35%foundinthispaperand54%foundinIndustryCanada’s(2018)report.

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4.1.2 Survival Rates by Industry

Basedontheresultsofpreviousresearch,survivalrateswerealsoexpectedtobedifferentacrossindustrysectors.Figure4.3showsthesurvivalratesineachofthesectorsrepresentedinthispaper’ssample.

TheaveragesurvivalrateoffirmsintheICTsector,whichrepresented44%ofthestartupsinthesample,was74%.Thiswasexceededonlybytheservicessector,withanaveragesurvivalrateof80%.However,sinceservicesectorstartupsrepresentedlessthan4%ofthesample,thisresultshouldbeinterpretedwithcaution.Theaveragesurvivalrateoffirmsinthelifesciences,cleantechnologyandmanufacturingsectorswerealllowerthanthoseintheICTsector,withaveragesurvivalratesof70%,68%and64%,respectively.

Figure 4.3: Survival Rates by Industry Sector Source: National Angel Capital Organization (NACO)

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Figure4.4showsthesurvivalratebyagesincereceivingangelinvestmentforfirmsintheICTsector.

Theone-yearandthree-yearsurvivalratesofICTcompaniesareidenticalat82%,andslightlyhigherthanthoseofthetotalsample(79%and78%,respectively).IndustryCanada(2018)alsofoundthree-yearsurvivalratesinInformationandCulturalIndustriesof84%.

Thefive-yearsurvivalrateofICTcompanies(62%)issignificantlybetterthanthatofthetotalsample(54%),butlowerthantheIndustryCanada(2018)resultsof69%.Again,theseven-yearsurvivalrateofICTcompaniesisidenticaltothatofthetotalsample(35%).IndustryCanada’s(2018)seven-yearsurvivalrateinInformationandCulturalIndustrieswas58%.

Figure 4.4: Survival Rates by Age Since Receiving Angel Investment in the ICT Sector Source: National Angel Capital Organization (NACO)

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4.2 Economic Impacts

Thestartupsinthisstudy’ssamplereceivedatotalofCAD$490 millionininvestmentfromangelinvestorsfrom2010to2016. Theseinvestmentshavesignificantlybenefitedthestartupsandtheirfounders,helpingthemtogenerateoverCAD$1.7billioninannualrevenueandtocreate6,856directjobs.Theeconomicactivities madepossiblebytheseinvestmentshavealsohadimportantspill- overbenefitstotheentireCanadianeconomy,whichareestimated inthefollowing.

4.2.1 Contribution to GDP TheinvestmentsmadebyNACO-affiliatedangelinvestorsenabledstartupstodevelopinnovativenewproductsandservicesandtoopennewmarkets.The775startupsinthisstudy’ssamplehavegeneratedtotalannualsalesrevenueofoverCAD$1.7billion.TheestimatedannualgrossvalueaddedtotheCanadianeconomybytheNACO-memberfundedstartups−includingtheindirectandinducedeconomicimpactsoftheiractivities−inthisstudyisoverCAD$3.3billion.

$705Minduced

$920Mindirect

$1.7Bdirect

$3.3Bin total

Figure 4.5: Estimated Annual Gross Value Added to Canadian Economy Source: National Angel Capital Organization (NACO)

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4.2.2 Job Creation

Between2010and2016,thestartupssurveyedintheNACOdatasetcreated6,856directjobsinCanada.Anestimated4,522additionalindirectjobsinsupplierbusinessescanalsobeattributedtotheeconomicactivityofthesestartups,whileanestimated3,250additionalinducedjobswerecreatedduetoemployeehouseholdspendinginthelocaleconomy.Consequently,theNACO-member-supportedstartupshavecontributed tocreatinganestimatedtotalof14,628jobs.

Figure 4.6: Estimated Jobs Created Source: National Angel Capital Organization (NACO)

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5. Implications

Thisstudyfoundimportantdifferencesinthesurvivalratesofangel-fundedstartupscomparedtootherempiricalstudiesofsurvivalratesinthegeneralpopulationofstartupsinCanada.

Thesefindingssuggestthattheone-yearsurvivalrateofstartupsfundedbyangelinvestorsislowerthanthatofstartupsintheoveralleconomy.Infact,accordingtothemostrecentreportfromIndustryCanada(2018),theone-yearsurvivalrateofangel-fundedstartupsisconsiderablylowerthantheCanadianaverage.However,thispaperfoundthatthemedium-termsurvivalratesofstartupsfundedbyangelinvestorscomparedbetter.Furtherfindingsindicatethatthelonger-termsurvivalratesofangel-fundedstartupsappeartobesubstantiallylowerthanthoseofstartupsinthegeneraleconomy.

Itshouldbenotedthatthereareimportantdifferencesinthemethodologyusedtodeterminesurvivalratesinthispapercomparedtothoseusedinpreviouslydiscussedreports.BothFisher&Reuber(2010)andIndustryCanada(2018)determinedsurvivalbasedonthefirm’sdateofincorporation.Thisdoesnotnecessarilyrepresentthedatefromwhichafirmbeganoperating,nordoesitfactorinthedateatwhichthefoundersbeganpursuingagivenbusinessopportunity,sowhileitisareliableandconsistentdate,itcouldbeconsideredsomewhatarbitrary.Thisdifferenceismorelikelytohaveaninfluenceonone-yearandtwo-yearcomparisonsbutlesssoinlateryears.

ThispaperinvestigatedsurvivalfromthetimeafirmfirstreceivedangelinvestmentfromaNACOmember.Angelinvestmentisoftenthefirstcapitalreceivedbystartups(Argerich&Cruz-Cázares,2017;White&Dumay,2017).Therefore,itcouldbearguedthatthedateuponwhichafirmreceivedangelinvestmentismorerelevantbecausethefirmhassufficientresourcestobeginoperating

andtopursueagivenbusinessopportunityinearnest.Thesemethodologicaldifferencesshouldbeconsideredcarefullywhencomparingthispaper’sresultswiththoseofotherreports.

Besidesangelinvestmentandassistance,theremaybeseveralotherreasonsforthevarianceinsurvivalrates.Theextantliteraturesuggeststhatpre-entryknowledge(Dencker,Gruber,&Shah,2009)andaccesstoongoingresourcesandcapabilities(Esteve-Pérez&Mañez-Castillejo,2008)mayalsoplayanimportantrole.Indeed,itisreasonabletoassumethattherisk-returnprofileofstartupsthatattractangelinvestmentmaybedifferentfromthegeneralpopulationofstartups,leadingtoagenerallylowersurvivalrate.Lowerlong-termsurvivalratesmayalsosuggestthatgreaterlinkagestootherstakeholders,suchasincubators/acceleratorsandventurecapitalists,arerequiredwithinthestartupecosystemtoappropriatelysupportthesestartupsovertime.Thisstudy’sfindingsalsosuggestthatsurvivalratesinvariousindustrysectorsmaydiffer,requiringsector-specificinvestmentandstartupsupportmechanisms.

Finally,thispaper’sfindings,althoughlimitedinscope,suggestthattheeconomicactivitysupportedbyangelinvestmenthasasignificantandfar-reachingimpactontheeconomy,bothintermsofcontributiontoGDPandjobcreation.

Economic activity supported by angel investment has a significant and far-reaching impact on the economy.

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6. Future Work

Basedonthesepromisingearlyresults,additionalresearchisneededtofurtherinvestigatethedifferencesinthesurvivalrates ofangel-fundedstartups.

Thispapermeasuredsurvivalratesfromthetimeastartupfirstreceivedangelinvestment,whilemanyotherstudiesmeasuresurvivalratesfromthetimeofthefirm’sincorporation.AdditionaldataontheincorporationdateofthestartupsintheNACOdatasetwouldallowforamorefaithfulcomparisonofthesurvivalratesofstartupsfundedbyangelinvestorsandthoseofthegeneralpopulationofstartups.

Thispaper’sfindingssuggestimportantdifferencesinthesurvivalrateofangel-fundedstartups,andfurtherworkisrequiredtobetterunderstandthereasonsforthesedifferences.Futurestudiesusinghazardmodelscouldinvestigatewhichproduct,marketandinvestmentfactorsarespecificallyassociatedwithhigherorlowersurvivalratesofangel-fundedstartups.

Understandingthefactorsassociatedwithhigherstartupsurvivalratesisimportanttoinvestorsandpolicy-makersalike.However,angelinvestorsareinterestedinfundingstartupsthatnotonlysurvivebutalsothrive.Futurestudiesusingeconometricmodelstoinvestigatethefactorsassociatedwithhighratesofpost-investmentstartupgrowthwouldbeparticularlyusefultoinvestors.

Finally,thisstudy’sfindingssuggestthatthelonger-termsurvivalratesofangel-fundedstartupsislowerthanaverage,andthismaysuggesttheneed,overtime,forgreateraccesstofollow-oncapitalandaccesstootherformsofsupport.Additionalworkisneeded tobetterunderstandtheexistinglinkagesbetweenkeystakeholdersinthestartupsupportecosystem,includingincubators/accelerators,angelinvestorsandventurecapital,andhowtheselinkagesmay beimproved.

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7. Partners

I-INC

Foundedin2014asatrulynationalnetwork,theIncubate-InnovateNetworkofCanada(I-INC)acceleratesscienceandtechnology-enabledinnovation,productivityandjobcreationthroughprograms,whichenabletheindividualandcollectiveinnovationimpactofitsmemberCanadianresearchuniversities.I-INCmembersworkcloselywithcomplementarylocal,regionalandnationalprogramstodeliveraspectrumofhighqualityprogrammingandsupportrequired tosetnationalbenchmarksandmoveresearchfromthelabtoglobalmarkets.

MITACS

ThispaperwasmadepossibleinpartthroughfinancialsupportprovidedbyMITACS.MITACSisanational,not-for-profitorganizationthathasdesignedanddeliveredresearchandtrainingprogramsinCanadafor20years.Workingwith 60universities,4,000companies,andbothfederalandprovincialgovernments,MITACSbuildspartnershipsthatsupportindustrialandsocialinnovation in Canada.

NACO

TheNationalAngelCapitalOrganizationsupportsAngels,incubators,andacceleratorsastheyhelpentrepreneursturngoodideasintogreatbusinesses.AstheonlynationalindustryassociationforAngelinvestorsinCanada,NACOrepresentsover40networkscomprisedofover3000AngelinvestorsacrossCanada.MembersassistCanadianstartupsineveryregionandindustrytoexecutetheirvisionandcompeteon theglobalstagebyprovidingthemwithpatient riskcapital,expertadvice,andprofessionalnetworkswhentraditionalfinancialandotherinstitutionscannot.

Ted Rogers School of Management, Ryerson University

TheTedRogersSchoolofManagementatRyersonUniversityisCanada’spreeminententrepreneurial-focusedbusinessschoolthatisshapingthecountry’snextgenerationofglobalinnovatorsandleaders.TRSMishometosixschoolsofmanagement,threeinnovativegraduatedegrees–twoMBAdegreesandoneresearch-focusedMasterofScienceinManagement(MScM)–and15cutting-edgeresearchcentres,institutesandlabs.

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