Analysis: Canadian angels put wings on more startup companies

By Allison Martell

TORONTO (Reuters) - For Canadian tech start-up Massive Damage, it took an angel to get its apocalyptic zombie game off the ground.

Experts say angel investors - high-net-worth individuals who commit their own money to risky ventures in sectors they are passionate about - are starting to fill a void left by a steady decline of traditional venture capital funds, especially in Canada.

Massive Damage's experience is not atypical. Venture capitalists were willing to hear Chief Executive Ken Seto's pitch but wouldn't bite, even though he had a track record with his mobile app company Endloop Studios, and the backing of Montreal incubator Year One Labs. Instead, Seto closed a funding round with angel investors.

"It took a lot more work," Seto said, after presenting his ideas to a succession of individual investors.

"Basically I was running around doing the fundraising for a good two months," he said in an interview. "I had to meet a lot of people."

A growing number of Canadian entrepreneurs are taking the same route, with VC investing dropping sharply in recent years, despite success stories like Research in Motion RIM.TO, the maker of the BlackBerry smartphone.

Canada's Venture Capital and Private Equity Association said this week investment in venture capital slipped again in the second quarter, part of a sustained decline.

Venture capital in Canada never really recovered from the 1990's tech bubble and a rush to safe assets after the credit crisis of 2008-2009.