Thursday, October 09, 2008

Canadian Start-UPs: Where's Our Bailout?

This week, the Canadian Venture Capital Association issued a call to federal political parties to support technology commercialization programs. I don’t know exactly what “issuing a call” entails, but it seems to me that the entrepreneurial community had better get on board with its own call right away, and that call should be: “We’d like a piece of that action, too, please.”

Although Canadian entrepreneurs have built a grassroots community that other regions can only dream about, we’ve overlooked bringing into the fold those best-equipped to provide relief from the current venture capital drought – federal policy makers. We complain, but we don't necessarily engage. And this oversight has allowed the venture capital community to co-opt the current funding crisis as exclusively theirs. The result? Government initiatives that, for the most part, propose to stimulate innovation by propping up the venture capital community first, leaving entrepreneurs to rely on trickle down benefits when those funds invest. This needs to change.

To be clear, I agree with the CVCA’s proposals for shoring up venture capital. There is no question that the venture capital industry needs help; we will not succeed as an innovation nation unless we have a strong venture capital class. I agree that the government must create a federal fund of funds to subsidize the venture capital industry. But this alone won’t bail out my clients - high tech companies that have hired, have built product, and are now starved for growth capital.

Trickle-down economics take time to have an effect, and it’s no different here. It will take time for any government money that is earmarked today for a fund of funds investing to churn through the economy to businesses. Before an entrepreneur can see relief, that money has to: (a) churn from the government to a fund of funds that the government forms, then staffs with a team (in Ontario, this took nearly 8 months from announcement to closing); (b) be deployed by the fund of funds to one or more VCs (think another 6-18 months); and (c) be invested by the VC in a company (think another 6-12 months). In other words, any money earmarked for the venture capital community today is perhaps 1.5 to 2 years from making its way into the hands of an entrepreneur.

Entrepreneurs need a near-term bailout now. I can hear the groans from Bay Street at the idea of any initiative that would create a government portfolio of venture-capital like investments, and I don’t disagree with the sentiment. But this seems to me the lesser of all evils, given the opportunity cost of waiting for trickle-down relief. Can we afford to lose another innovation cycle by starving the entrepreneurs out there today?

So, grass-roots community: it’s time to find our government voice. Let’s say something, and say it soon. If there are initiatives afoot, let’s be afoot more loudly. Maybe it’s even time we asked for our own government funding, like the National Angel Association and others have received from the MRI, to create our own policy watchdog network.

But what we cannot do is rely on organizations for other industries to carry the day for us. Drafting only works if: (a) you're on a bicycle, and (b) the rider in front of you is headed in the same direction.

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