In Canada, he has to explain his business and industry to venture capital firms (VCs); in the U.S., the VCs know the space better than he does, and offer advice on regulatory considerations, reimbursement schemes, and where to find the best experts to help his business. “I would characterize Canadian venture capitalists as generalists,” he said. “In the U.S., they’re specialists. It’s surprising more Canadian companies don’t move down to Silicon Valley, because the depth of expertise and knowledge are so much deeper.”
It’s a widely shared assessment. “I don’t think local Canadian VCs have the benefit of seeing patterns over long periods of time over a wide range of industries or geographies,” said Trevor Oelschig, vice-president with U.S. VC Bessemer Venture Partners, which backed Skype, LinkedIn, and, in 2010, Ottawa e-commerce platform developer Shopify Inc. “If they’re thinking of investing in a company [in online retail], they’ve probably seen a few firms in Canada. We have probably seen hundreds, as far away as Australia or Brazil. When we see a spark that’s interesting, we often act quicker.”
That’s a big disadvantage, but not the only one, for Canadian VC firms. For a brief time in the late 1990s and early 2000s, Canada was a venture capital hot spot. Egged on with incentives from Ottawa and eager provincial governments, individual and institutional investors poured money into Canadian funds to finance risky startups just as the dot-com bubble expanded. A lot of dumb money chased dumb investments, managed by a lot of people who lacked the entrepreneurial smarts to identify and nurture promising young firms. The field was dominated by labour-sponsored venture funds, a creation of governments that gave small investors huge tax breaks – but drew inexperienced managers who charged high fees and bid up the values of small firms, hampering returns and crowding out “good money.”
Since the dot-com crash, returns have been dismal. Canadian VCs have barely raised more than $1-billion a year in any of the past five years, and much of that has come from government or quasi-government sources such as the Business Development Bank of Canada. As a result, Canadian VCs are smaller than their US counterparts, have less to invest and a lower appetite for risk.
Three years ago, Silicon Valley venture capitalists Chris Albinson and Anthony Lee were swamped by calls from Canadian entrepreneurs who feared the venture funding ecosystem at home was collapsing. Inspired by the “Own the Podium” program that precipitated Canada’s strong showing at the Vancouver 2010 Olympics, the two Canadian expatriates pulled together dozens of the Canadians who worked in the Valley to form a high-end support group for fellow Canadian entrepreneurs. Since then, their “C100” group has actively reached out to mentor Canadian entrepreneurs. “We are starting to make an impact helping Canadian entrepreneurs think bigger and grow faster,” Mr. Lee said.
That’s one of many reasons for hope in Canada’s startup sector. A spate of promising Canadian firms have attracted financing from large U.S. VCs. “Angel” investors – typically flush entrepreneurs and tech executives who provide money and expertise to startups – have returned to the scene. Other experienced entrepreneurs have started “accelerators” to provide seed capital and boot camp training to nascent entrepreneurs. “Companies make mistakes early on that can be life threatening,” said Amar Verma, a Toronto-based software entrepreneur and venture capitalist who runs the newly founded Extreme Startups accelerator. “We get them to not do these things.” A spate of new mobile app-oriented VC funds led by accomplished entrepreneurs such as Matt Golden in Toronto and Boris Wertz in Vancouver have raised $10-million to $20-million each.
Meanwhile, pension fund OMERS last year earmarked $200-million to invest directly in startups. It has already committed over half of that to 10 firms. “I hope to shame [other Canadian pension funds] with a little competitive pressure” to invest in VC again, said OMERS Ventures CEO John Ruffolo, a former management consultant who has hired experienced entrepreneurs to manage the portfolios. “There’s no [shortage] of opportunities to invest in.”