Thomson Reuters (ironically, founded and 53% owned by a Canadian family) recent research indicated that the amount of venture capital dollars invested in Canadian startups declined 2% in the second quarter compared to the same period last year while the US market grew 15%. While money is pouring into silicon valley startups addressing social media, cloud computing companies and mobile applications, our brightest and most talented entrepreneurs in Canada are hitting a wall when it comes to raising capital for their companies.
These Canadian entrepeneurs/companies are left with no choice but to seek capital down south and most likely move their companies to California or Boston. The local Canadian R&D credits are interesting but if you can’t raise the money to spend on R&D, it doesn’t matter.
This venture industry contraction has and will certainly adversely impact Canadian technology industry unless some significant changes happen. In my opinion, there is not a shortage of quality of entrepreneurs. Instead, there is a shortage money willing to take the risk and back experienced venture capital funds who can source, filter and work with this elite group of individuals. The number of Canadian venture funds active in early stage investing is probably less than 10 from over 50 firms 5 years ago. This is not enough capital to support this venture capital industry.
The interesting paradox is that Canadian commercial banks and pension plans are sitting on record balance sheets and therefore liquidity is not an issue. These same entities depend on deposit and job growth..exactly what the Canadian venture capital industry delivers. Why aren’ t they putting more capital in this asset class? What the Canadian venture capital industry needs is LP leadership. We do have a few leaders like Northleaf Capital, OVCF, and BDC but the industry needs much more. Once we get a few leaders to step up, take the risk and see the returns and the ong term value..others will follow. Unfortunately, the outlook is grim and this contraction will most likely continue.
