There is a widespread perception in Canada that there isn't enough capital for startup entrepreneurs. As much as Canada would like to see its startup community flourish, there is apparently too little cash and too much conservatism among investors.
Chris Arsenault, managing partner at Montreal-based iNovia Capital, has a slightly different perspective.
He believes there is financing available for "aggressive, hungry and paranoid" entrepreneurs who want to change the world. The problem is that there aren't enough of those kinds of entrepreneurs in Canada.
At the same time, Mr. Arsenault said there is a misconception about venture capital, particularly the type of entrepreneurs who should be attracting it.
"A VC fund is not made for a service company or someone who wants to build an app and sell it for 99 cents," he said during a recent interview. "It is not made for someone who doesn't want to work for someone else, or thinks they can build a little company."
"Venture capital is made for people who are very ambitious, people who want to make a dent in the world, eat someone's lunch, and want to disrupt someone's business. That attitude, we don't have enough of in Canada."
Within the Canadian venture capital and startup communities, iNovia is playing an increasingly interesting role. With a 27-company portfolio that includes high-profile firms such as Beyond the Rack and Well.ca, iNovia is among Canada's most active venture capital investors.
Its efforts were buoyed by a new, $110-million fund launched in December, whose investors included Teralys Capital, BDC Venture Capital, AVAC Ltd., Alberta Enterprise, the BC Renaissance Capital Fund and the iNovia General Partner.
Along with having enough capital to pursue a variety of deals, Mr. Arsenault said iNovia has an ambitious goal to rank as one of the top 5 per cent of venture capital funds in North America, alongside high profile players such as Kleiner Perkins Caulfield and Byers, and Sequoia Capital
"I want to be on the list," he said. "As soon as you do that, the top-tier investors will be knocking on your door, asking how much you need. The only way to be part of the same crowd as Kleiner and Sequoia is our reputation on what we can deliver for entrepreneurs other than cash, so the entrepreneur says I want to work with you. If we do a good job on this front, we automatically create amazing returns for our investors – half are individuals and corporations and the other half are institutions."
iNovia's investment focus is digital media, consumer Internet and enterprise software-as-a-service companies. It can invest as little as $250,000, and as much as $8-million over a series of tranches.
Mr. Arsenault said the flexibility to make small investment provides it with the ability to get involved in interesting opportunities, while still giving it the freedom to adjust its investment involvement based on a startup's progress.
While the emergence of more seed-focused investors, incubators and accelerates is an encouraging development for Canada's startup landscape, Mr. Arsenault said the community is still struggling with the low involvement of institutional investors, such as insurance companies, pension funds and major banks. This situation, he said, is driven by their belief that there is too risk for returns based on how venture capital funds have performed over the past 15 years.
"We as an industry have to prove to this category of institutional investors [that]the returns are there," Mr. Arsenault said. "That is why the government[s]in Quebec, Alberta and Ontario have stepped up in different forms. They are replacing the first category of institutional investors that aren't comfortable yet, and our jobs as fund managers is to show them the results."
In an ideal world, Mr. Arsenault would also like to see large corporations get involved. Aside from the potential returns, he said companies could benefit by developing new relationships and gaining exposure to new and emerging technologies that could a major effect on their businesses.
"If you took our top 100 companies, they could invest in one or a few funds. Five-million dollars will not change their lives; $5-million often is the CEO's bonus. You take the $5-million, put it into a fund, and you are an LP. You end up with 20 to 30 new relationships, you end up with marketing, business development and technology, and access to people, information, and what is coming around the curve. Unfortunately, Corporate Canada is not in the game."
Special to The Globe and Mail
Mark Evans is the principal with ME Consulting, a communications and marketing strategic consultancy that works with startups and fast-growing companies to create compelling and effective messaging to drive their sales and marketing activities. Mark has worked with four startups – Blanketware, b5Media, PlanetEye and Sysomos. He was a technology reporter for more than a decade with The Globe and Mail, Bloomberg News and the Financial Post. Mark is also one of the co-organizers of the mesh, meshmarketing and meshwest conferences.
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