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With our small population size, limited access to capital and constant competition from the United States, Canadian tech startups have been sold the idea that the best way to grow is through venture capital. Indeed, we’ve been taught to be happy that we’re on the radar of VCs at all. But a growing number of examples illustrate that giving up control in exchange for investment is not always a recipe for success.

Gone are the days when Canadian startups had to go begging for venture capital. VC investment in Canada increased by 113 per cent between 2011 and 2016, as more Canadian firms opened for business and their American counterparts discovered the potential sitting on this side of the border. Yet access to capital in this country remains far below what’s available in the United States and Britain, with comparatively smaller financing rounds and lower exit values.

For companies that do secure funding, contending with the demands of investors looking to exponentially increase revenues on a short timeline can lead to a fundamental clash of values and, ultimately, frustrating setbacks. From wearable device maker Jawbone to grocery delivery app Webvan to Canada’s own Shoes.com, recent history is littered with examples of startups that flamed out in spectacular fashion after an injection of VC cash led them to focus on exponential growth at the expense of customer service and quality products.

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The potential pitfalls of this funding model have even led to a fledgling backlash against VC funding in the United States, where some companies have gone so far as to buy out investors with their profits in hopes of returning to a path of slower, more sustainable growth.

The problem is that the “grow-fast-exit-fast” mentality that underlies venture capital doesn’t fit all companies, especially those looking to create a lasting business. At the same time, financing your company with venture capital often comes at the cost of a board seat, allowing critical company decisions to be influenced by investors whose interests may not always lie in the long-term viability of the company. Under this model, even a big exit can come at a cost, with VCs negotiating to get paid first, leaving founders and angel investors out to dry.

Don’t get me wrong. For the right, fast-growing company, venture capital provides an excellent runway for success – particularly when founders pair with values-aligned investors. But venture financing has been presented as a panacea for every startup when, in reality, it works for only a small minority.

It certainly doesn’t help, however, that for Canadian companies the primary fundraising alternative – going public to raise money – often proves just as challenging. The lack of capital leads companies to list on the Toronto Stock Exchange at an earlier stage than those in other countries, leaving them vulnerable to their own inexperience. New entrepreneurs rarely have the expertise, or access to executive talent, required to navigate the demands of shareholders, to whom they’re now beholden, while also managing the exponential growth that comes with an influx of cash.

Taken together, the dearth of experienced senior talent and access to capital results in a chronic underperformance of the TSX, which has only a 3-per-cent to 4-per-cent weighting in technology. Horror stories of “pump-and-dump” schemes and shady backroom deals abound. (Little wonder that one of our now-defunct stock exchanges, the Vancouver Stock Exchange, was once dubbed “the scam capital of the world.”)

So what is the way forward when it comes to funding Canadian startups? The question doesn’t have easy answers. It requires radically expanding the options on the table to embrace everything from grants and subsidies to debt and alternative ways for private companies to raise capital and go public. Above all, what’s needed is an end to the venture-capital tunnel vision that has fixated Canadian tech entrepreneurs for so long.

With a wealth of tech talent, a highly educated population and a thriving entrepreneurial spirit, we can’t afford not to find creative ways to fund homegrown companies and, more than that, provide a way for them to grow without leaving our borders. While much of the conversation around Canada’s tech sector – and the challenges it faces – centres on the “brain drain,” access to talent isn’t necessarily what lures promising startups such as Slack Technologies south of the border. Rather, it’s access to funding and operational expertise. Solving this problem is paramount to creating a future where Canadian entrepreneurs can see a future here at home for themselves – and their companies.

Manny Padda is the founder and chief people connector at New Avenue Capital.

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