Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Real estate, home with a view (Scharvik/Getty Images/iStockphoto)
Real estate, home with a view (Scharvik/Getty Images/iStockphoto)

Venture Capital

Is the influx of U.S. dollars helping or hindering Canadian innovation? Add to ...

Over the past decade, Canada has, without fanfare or ceremony – and notwithstanding Blackberry’s recent endeavours – become a shining light in the world of tech innovation. Canadian modesty dictates that this fact is kept suitably quiet, but anyone witnessing the work being undertaken among the numerous new and established startup communities, will see that we’re pushing the innovative envelope and every boundary they can find.

More Related to this Story

And where any major innovation resides, money will surely look to pitch a tent in the garden. There’s no doubt that American investors have caught the scent and are looking North more than ever before to place their dollars in new markets less crowded and often less volatile than their own.

But is this influx of U.S. dollars helping or hindering Canadian innovation?

Big wallets and low valuations

The Canadian tech scene is an entirely different animal to that of the States. We’re surprised to see our industry support two, three and four million-dollar startup financing rounds, only to look South and witness $19-billion being paid for WhatsApp or the comparatively sedate $2-billion for Oculus Rift.

These numbers are hard to write, let alone, rationalize. They are, however, a clear indicator of the marketplace’s power and capabilities, and what happens when it locks onto projects and technologies it sees with great potential.

Set against U.S. startups pulling in multi-million dollar seed rounds, early acquisitions of Canadian companies – which are currently operating on next to nothing – have an obvious attraction.

Weeve is a Vancouver based crowd funding for non-profits, that raised a $500,000 seed round. Their fast growth and development led to an acquisition of undisclosed terms from LX Ventures.

Compare the Salesforce acquisitions of Radian6 and Buddy Media a year apart. Radian6, a cash flow positive, Canadian company was purchased for $326-million. Buddy Media, a company with a burn rate of $42.5-million a year and loss of $20.6-million for $745-million.

The talent tightrope

The decision to take American investment can be a tricky one for startups and entrepreneurs. If investment is made by U.S. venture capitalist, chances are high that the Canadian startup will relocate to be closer to the domain of their investors and/or within the sphere of influence of potential next round investors.

There’s a popular assumption that if this decision is made and a startup’s talent relocates, value to the wider industry goes with it. The truth is, however, that successful acquisitions can have positive implications for the local industry which exceed the immediate losses.

The C100 runs an event called 48 Hours in the Valley in which expat entrepreneurs meet with growing startups that are in Canada to share market knowledge and their stories. They give back to the community, but also begin a network of connected Canadian entrepreneurs.

Venture Capital is a cyclical industry, the successful entrepreneurs from one generation move on to become the venture capitalists of the next. The Canadian market currently doesn’t function like this, but is starting to see that growth occur. Thanks to the incentive from the Canadian government into Venture Capital, the Start-up Visa program, and successful entrepreneurs that have migrated to American markets, that knowledge is starting to flow back into Canada.

The difference is perception and inspiration.

Returning the favour

As Canadians, we’re inherently proud of our country. Sure, the world might only hear the roar when our Olympic teams take to the ice every four years, but the fact remains, we like to see our own succeed. Organizations like the C100 have tapped directly into that patriotic impulse, organizing events like 48 Hours in the Valley, which pairs successful Canadian mentors living in the U.S. with Canadian startup entrepreneurs in order to introduce them to potential investors in Silicon Valley.

To receive encouragement and draw inspiration from the successes of fellow Canadian entrepreneurs is a highly significant and powerful motivator for young entrepreneurs, and one which might just help keep our country innovating for years to come.

Cameron Chell is the Co-founder and CEO of Business Instincts Group, a venture creation firm in Calgary that finances and builds high-tech startups.To learn more about his work with sustainable startups you can visitwww.CameronChell.com

Follow us @GlobeSmallBiz, on Pinterest and Instagram
Join our Small Business LinkedIn group
Add us to your circles

Sign up for our weekly newsletter

Follow us on Twitter: @GlobeSmallBiz

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories