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Technological innovation has made it easier than ever for startups to connect with a global customer base. But the same opportunities for startups present significant problems for Canadian investors and VCs (6gasix/Getty Images/iStockphoto)
Technological innovation has made it easier than ever for startups to connect with a global customer base. But the same opportunities for startups present significant problems for Canadian investors and VCs (6gasix/Getty Images/iStockphoto)

Commentary

Are Canadian VCs being outplayed by their American counterparts? Add to ...

For Canadians, there’s the notion that we belong to what Marshall McLuhan called the ‘Global Village.’ With seismic shifts in technological innovation, the world seems to be shrinking before our very eyes and although national boundaries continue to divide countries, communities are merging like never before. For startups seeking global attention – from investors and customers, alike – this dynamic presents an immense opportunity.

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But for Canadian investors and venture capitalists, it presents significant problems. The smaller the world gets, the more competitive the landscape starts to look, and for Canadian investors, this means; stay ahead of the curve or fall into obscurity.

The shrinking world

With instant access to customers on distant continents, automated shipping across oceans and deserts, and the ability to trade online 24 hours a day, the way businesses compete globally has changed dramatically.

And while setting up and positioning to trade internationally remains a complex task, more so than ever, it’s become a natural progression for any company. Surviving and thriving, for a startup especially, means being able to achieve sustainable growth.

For new businesses in Canada, the most obvious expansion is to the American marketplace. With an enormous and affluent population, it makes sense that this is the first stepping-stone for scalability.

This used to be the reserved play area of giant corporations, but as the world shrinks, national borders often become faded and the definition of local tends to broaden. Solving local pain points used to be one of the keys to success. If a startup could prove they were able to solve a problem for their immediate customers, local venture capital would support early funding rounds. Unfortunately for Canadian VCs, however, the companies that stay local are often too small for investment, and the ones looking to play a larger game, and trade globally, are often seeking the attention of their deep-pocketed American counterparts.

The American hunger

Over the past few years, the stories making waves in the Canadian startup community have been about large funding rounds or acquisitions by U.S. companies.

With the American media’s penchant for hype and excess, combined with the current rock-star status of the entrepreneur, there are now plenty of recognizable faces in the American VC community. These personalities have spotted and helped to steer many of the tech scenes most notable winners and continuously tap the pulse of global trends. Whether it’s Tim Draper, of Draper Fisher Jurvetson, talking about China being the next startup scene, or Indochino raising $13-million from American VC’s, big American Investors are getting involved outside of their borders.

But the U.S. venture industry has been sniffing around for fresh blood for some time now. While the startup industry south of the border is highly active, it’s also exceedingly paranoid about ‘bubbles’ and ‘booms,’ which explains the growing desire to look beyond borders.

These are positive signals for Canadian entrepreneurs. But for Canadian investors, it means increasing pressure to match the might, speed and clout of their U.S. counterparts for the best deals in town.

It’s not just a South-North dynamic either. Also acting to marginalize Canadian investors is a well-orchestrated push to match-make Canadian companies to American money. Organizations like the C100 host regular events that introduce Canadian startups to investors in Silicon Valley.

Canadian investors need to reinvent

Investors spend their time evaluating startups. They look at them from every angle, figuring out what looks like it’ll work, where they’ll likely need to pivot, and digging down into each strength and weakness. This ability to properly evaluate startups, as well as see inside the market they are looking to enter, is what separates the players from the moguls.

Our U.S. counterparts recognize the talent we’re fostering and the strength of the companies we’re creating, and by entering into the Canadian marketplace to invest further, they’re effectively marginalizing the Canadian investor.

To compete, Canadians may be forced to reinvent themselves. This reinvention might come through focusing on early-stage investments that can be promoted to the larger American entities later in their cycle, or alternatively, through a more bullish commitment to high potential startups and entrepreneurs before they look to the South.

Private investing is no longer about finding strong local players that you can build a nest egg from, the competition in the marketplace is simply too great for that to be the case. Without a constant push to compete with foreign investors, the Canadian investor will be nothing more than an afterthought with our most promising national companies snapped up before they’re on the local radar.

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 visit www.CameronChell.com

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