As it prepares to host angel organizations from across Canada next October, the Halifax-based First Angel Network is taking a lead in improving the standards of angel investing in Canada.

Ross Finlay, a founding member and de facto executive director of the Maritime group, spent last week at the National Angel Capital Organization Summit in Ottawa, and he and his executive are already organizing the next NACO Summit, which will be held in Halifax Oct. 24-26, 2012.

Finlay is now the vice-chair of NACO, the umbrella group for angel organizations in Canada, and also the chair of its new Standards, Education and Professional Development committee. And in Ottawa, he conducted a five-hour workshop on due diligence for angel investors as part of a drive to standardize best practice across the country. 

Finlay said the theme of this year’s NACO Summit was that angel investing is now being more accepted as an asset class by individual investors, that it is a bona fide strategy for avoiding the volatility of the stock market and the low returns of debt markets, and that acceptance only heightens the need to ensure that all angel networks are adopting best practice. 

“NACO wants to develop a set of guidelines/standards to give more comfort on the issue of co-investments,” said Finlay in an interview last week.

To understand the significance of all this, it’s probably best to take a close look at the landscape for angel investing. Though angel investing often is done through personal relationships between an entrepreneur and a contact with money to invest, there is a patchwork of angel organizations across the country in which individuals bond together to jointly back enterprises. Investors draw comfort from knowing their local organization has vetted a proposal, and the entrepreneur can tap the network for mentorship.

However, there are huge gaps in the standards of the different angel groups. Atlantic Canada is lucky FAN is known as one of the better organizations in the country. When Randy Thompson, the CEO of the Calgary-based angel group VentureAlberta, spoke at Invest Atlantic in September, he said there are only about five angel groups in Canada that are truly active and one is FAN.

So why does it matter to Atlantic Canadians if other networks aren’t up to scratch? The reason is angel groups and venture capital firms are always on the lookout for co-investors. These are other VCs or angel groups willing to invest with them and thus diversify the risk while ensuring the entrepreneur has enough capital for his or her project.

Finlay said the venture capital arm of Business Development Bank of Canada recently told NACO it wanted to co-invest in some of the enterprises backed by angels, but the standards for due diligence, term sheets, mentorship and processes vary hugely around the country.

“They’ve vetted the First Angel Network and said that with our discipline and processes we are the gold standard,” said Finlay. “They’re impressed with Anges Quebec as well. But the rest of the country, they’re all over the map.”

Finlay said his committee has begun the process of establishing standards across Canada and educating members about best practice. The seminar in Ottawa taught about 60 people how to conduct due diligence – the questions to ask, the documents to examine, what to look for in a company’s structure. He said the organization would offer further workshops in the next two years on such subjects as valuation, term sheets and mentorship with the hope of increasing the standards of investment across the country.

First Angel Network has co-invested with venture capital funds in such companies as ClearRisk of St. John’s and Intelivote of Dartmouth.