Wednesday, May 21, 2008

Is There a Case for Canadian Venture Capital?

I did a guest post for the Canadian Venture Capital Association blog entitled “The Case for Canadian Venture Capital” which you can check out here. Now that I think about it, it probably would have been more accurate to name the piece “Canadian VCs: Wake UP, Already!”

In the last 18 months, the quality of entrepreneurs and business plans coming through our office doors is better than it’s ever been, and I don’t think that’s because we got a new espresso machine. Rather, I think it’s a sign that the community’s grassroots efforts to support itself have paid off in spades.

But while the Canadian start-up scene has exploded, its relationship to the venture capital community has continued to steadily implode. In Canada today, there is little connection between company creation and venture capital. Why?

It’s not just a reflection of the shrinking number of VC funds (although this doesn’t help). It’s also a matter of VC business strategy. Many VCs will tell you that their job is to deploy capital, not to support the entire startup community. They cannot monetize spending significant portions of time with entrepreneurs and companies that may never need their money. Fair enough, in one sense. In another, it represents a huge lost opportunity.

Many Canadian VCs believe that a portfolio of both Canadian and American investments is necessary in order to achieve a decent return to their limited partners. However, accessing deal flow in the US remains a challenge for many.

By contrast, Canadian entrepreneurs are doing a terrific job networking south of the border, creating connections with other startup communities. They are a potentially a terrific source of deal flow for Canadian VCs. Am I connecting the dots here?

As a startup community, I don’t believe we can create sustainable momentum unless we make a conscious choice to buy local when we can. If we become a community funded by angel and venture capital tourists, then we become a community that allows the profits and returns from our efforts to accrue outside our own economy. I wish it were as simple as simply choosing to include local money in any round of funding, but I think there are several baby steps that need to be considered. Is there a way to jointly market VC and startup abroad? Food for thought.

3 Comments:

Anonymous MRM said...

S

Don't forget that there is plenty of growth capital around. It just doesn't have to come in the form of venture capital, but venture debt as well.

Our firm has led more than $145 million of new investments via 22 deals over the past 21 months. Someone is getting $ out there!

MRM

12:36 PM  
Blogger Suzanne Dingwall Williams said...

I thought you didn't like it when we called you venture debt...not that there's anything wrong with that.

5:43 PM  
Anonymous MRM said...

I'm ok with that

MRM

3:28 PM  

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