In Canada, there are a growing number of reasons to be optimistic about the venture-capital (VC) sector's ability to finance and nurture promising startups.
The rise of incubators and accelerators in the past couple of years has had a significant impact on the startup ecosystem, with early stage companies getting more support to help turn their ideas into businesses.
At the same time, there is more venture capital available through players such as Real Ventures, iNovia Capital, OMERS Ventures and Rho Canada Ventures.
There are many reasons to be optimistic, but a gap in the ecosystem remains – the lack of capital available to startups that are no longer early stage because their products have become more mature or they have attracted a significant number of customers. For startups in this category, there are not enough financing options in Canada. It means many of them have to head down to the United States for capital, sell before they have the chance to realize their full potential, become low-growth or "lifestyle" businesses, or struggle to stay in business.
Bruce Croxon, a judge on Dragons' Den and the c o-founder of the popular online dating service LavaLife, describes the lack of growth capital as a "very big hole" within the Canadian startup and venture capital ecosystem.
"While there's solid support for early-stage, pre-revenue startups through incubators and accelerators, there is a troubling gap in the market between fast-growing startups and investors willing to help them accelerate growth," he explains.
Rather than talk about what's wrong, Mr. Croxon is acting to address the problem with the launch of Round 13 Capital, a new VC business that aims to raise at least $100-million to finance high-growth startups with proven technology and global potential. Round 13 wants to differentiate itself from other VCs by attracting part of the new fund's capital from entrepreneurs who have founded, built and exited startups. (Full disclosure: I have provided consulting services to Round 13 Capital.)
These investors will not only put in money but provide due diligence on potential investments, as well as offer advice and mentorship to portfolio companies.
The founding funders include:
- Christopher Barnard, co-founder of Points.com, which trades on NASDAQ.
- Dave Chamandy, founder of Darwin Dimensions, which was sold to AutoDesk. He’s also co-founder of Lavalife, sold to MemberWorks for $176 million.
- Paul Chen, founder of FloNetwork, which was sold to DoubleClick for $80 million. He’s also founder of Fortiva, sold to Proofpoint.
- Randall Howard, co-founder of MKS, sold to Parametric for $304 million.
- Nick Koudas and Nilesh Bansal, co-founders of Sysomos, sold to Marketwire.
- Daniel Langlois, founder of Softimage, sold to Microsoft for $200 million.
- Ray Reddy, founder of PushLife, sold to Google.
- Mike Serbinis, co-founder of DocSpace, sold to Critical Path for $580 million. He’s also co-founder of Kobo, sold to Rakuten for $315 million.
Mr. Croxon says the launch of Round 13 after months of work behind the scenes will hopefully attract the interest of institutional and corporate investors, who have been sitting on the sidelines for most of the past decade. "Our vision is straightforward," he says. "We want to become the leading technology financier in Canada and be the investor of choice for entrepreneurs."
Special to The Globe and Mail