The State of Canadian VC…

I spent a couple of days last week at the Canadian Venture Capital Association’s annual conference. Pretty much every fund in the country was there.  Perhaps it was the perfect Montreal weather, but the mood at the conference was very positive. Weather aside, there are lots of reasons to be optimistic about VC in Canada – and we have a great opportunity ahead of us – IF we play it right.

So, why all the smiles?

For starters, there’s lots of fresh capital. Celtic House, iNovia and Rho Ventures have all raised new funds recently. And OMERS launched a new fund late last year. Finally, BDC, a longstanding player in the Canadian VC landscape has come out swinging, funding accelerators and startups at a fast pace.

On the company side, the pool of new and established Canadian startups is growing! Coast to coast, our startups and making big moves. Whether it’s Go Instant in Halifax, raising capital from the who’s who of Silicon Valley’s elite or Vancouver’s Hootsuite raising $20M to double down and build a billion dollar company.

It’s a reflection of both the quantity and quality of what’s going on here that US investors are paying more and more attention to Canada. At the most recent Founderfuel demo day, we had well over 100 investors in attendance, many of whom came up from the US. And as posted on the Real Ventures blog, our fund has co-invested with some amazing funds. I’m sure many other Canadian VCs have done the same.

Finally, exits are happening. We had over $1B in exits in Canada last year.

If there are any clouds on the horizon, they relate to the disappearance of the US / Canadian border when it comes to VC. When I first entered the startup World, you had no choice but to raise seed and series A in Canada. Only then could you tap the US funding markets. That’s no longer the case.

Whether it’s great startups with traction hitting Angel List (there are 890 Canadian startups listed there), or proactive seed / early stage VC funds coming up here to pick our best deals *before* they get funded locally (500px and Tribe HR are just two examples of this trend).

There is a perception (rightly or wrongly) that US investors are better than Canadian ones. And that given the choice, founders would raise in the US. Whether this is true or not is not the point. It’s the perception and with the borders coming down it represents a real risk to Canadian investors.

To counteract it, we need to:

Move quickly: Show commitment to a deal before someone swoops in and takes it. I have been guilty of this in the past, and lost out on a great deal as a result.

Pay up more: It is a fact that I have proven again and again, that a Canadian startup that already has traction will get a higher valuation in the US. When we raised Tungle‘s Series A as just one example – there was a 3x difference between the valuations we got in Canada and the US.

Build our brands: The entrepreneurs we want to fund read Fred Wilson, Mark SusterBrad Feld and other (US) thought leaders. We need to be considered alongside these people to get access to the best opportunities.

Build our networks: I goto Boston or NYC every month. Every time I’m down there, I stop in to meet fellow VCs. More often than not, those VCs are just going to or returning from the Valley. They’re out there all the time building investor and acquirer relationships.

In the same way that we expect the Canadian founders that we back to build global companies on par with the rest of the World, we need to hold ourselves to the same bar. We need to have the same access to dealflow, talent, follow on capital and strategic partners that any top tier US fund has. In short, we need to measure ourselves against the US market, not just the Canadian one.

So that’s it! I for one am more bullish than ever about the state of Canadian VC.

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  • katieraspberry

    This is a fantastic article – It's the first time I hear about Angel List. Start-ups are so incredibly hard to start without the right funding and I learnt that the hard way. Connects are key in the business world and without them things just get harder. It's great to have connections and opportunities outside your country.

    Enjoyed this very much.

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  • A lot of the VC activity I see is tech or platform driven. Which is great but ultimately users consume content not delivery.

    Content is tough because, in a .27% CTR world, making money requires more than ad strategy. Where the VC is looking for patentable IP, that sort of strategy looks pretty fuzzy. But it is critical as the mainstream media layoff reporters, build paywalls and haemorrhage both readers and revenues.

    Building links into content, as well as delivery, may be a driver for successful VCs in future. At some point the combination of apps and interest will overwhelm legacy media – the billion dollar question is what will be there to replace it.

  • Mark – Great post. Sorry we did not get a chance to chat in Montreal.

    I'm all in on two of your comments – brand and network. Canadian VCs need to spend much more time face to face with other investors and entrepreneurs and be open to looking outside of their immediate spheres of influence. In my early VC career, building my linkages has been key to my ability to develop pipeline, get in on good deals and conduct top notch due diligence. It will hopefully result in high value co-investments, impactful follow-ons and happy harvesting.

    On the pay up comment, I would agree we must move quickly and pay the price for good deals. I would not agree that we generally undervalue firms though perhaps companies are, overall, underfunded in dollar terms.


    • In the current funding environment we probably pay "fair" values. But when entrepreneurs have the opportunity to get investor to overpay (which many are doing now) they will do it – even though it can have big negative consequences. There's a risk of losing the hottest deals if we don't move out of our valuation comfort zone.

  • Mark,

    Great post. I think your points about the needs for Canadian VCs to build networks and brands are critical. I would go further and say that Canadian VCs need to at building networks that include and go beyond the US. There is a startup life outside of Boston and Silicon Valley and they are usually in emerging markets of Asia, Middle East, Brazil and even in some developed countries/cities such as Berlin and Scandinavian ecosystem. While traveling there often is probably not feasible for a Canadian VC – building networks with investors in those regions who travel frequently to North American is possible.
    This will be critical as Canadian entrepreneurs seeks to really build a billion dollar companies.

    • I hear you on emerging markets. As a small seed fund, they are not a fit for us. At the stage we invest at, it's all about people so you invest in markets where you can spend a lot of time. But for larger funds that makes sense.

  • Paul Goldenberg

    VC's here in Canada act like bankers, only operating in a low-to-no risk environment. As long as they do, the Canadian VC scene will continue to remain the same.

  • It's just encouraging to hear Canadian VC's talking this way. 🙂 I think most Canadian tech founders would prefer to raise majority Canadian if they could, particularly if their technology is of national interest. We can't keep letting other countries define and lead the major spaces, we need to carve out our own areas where we dominate — well I know I'm preaching to the converted here.

    If I follow the playbook on being thought leaders, I would think you need to form tight relationships with a research firm (doesn't necessarily have to be local), commit to a benchmarking study and release your own methodology backed up by proven case studies. It would be neat if that methodology somehow leveraged Canada's unique insights or position in the world (e.g. was a combination of the individual strengths of the American and European approaches). Partnerships with a major university always helps too (at least it did when I worked in supply chain benchmarking in Germany at the start of my career many moons ago).

    One very good point I felt at the conference was Jonathan Ehrlich's comment that Canadian entrepreneurs sometimes are missing the killer instinct to want to win the top prize in markets. Anything that can be done to support a culture of reaching for the absolute pinnacle is much appreciated by those with those kind of ambitions. 🙂

    • I'm not too fussed with the research benefit to Canada. I just want us to build BIG companies here. Every major tech hub is anchored by huge tech companies. Ours are few and dying.

      Having more canadian investors helps you build your team locally without pressure to have us offices (unless it makes sense for your business)

  • Mark: Glad to hear you're bullish about Canadian VC. 🙂 It has been interesting and refreshing to see how the dynamics have changed so dramatically over the past year. The emergence of new funds is good to see given how far behind VCs were behind what's happening within the start-up world.

    I would temper my enthusiasm somewhat by suggesting there's still room for improvement, particularly within the series A part of the ecosystem. We're doing a much better in incubating and seeding startups but there needs to be more growth capital to support them.


    • Hey Mark. Inovia, Rho, BDC, Vanedge, Growthworks, Innovacorp, Celtic house (I'm probably missing some) all invest mainly at the series A level.

    • Mark, Mark is correct – We do seed and early growth Series A deals in life science, IT and cleantech. Generally, the Series A rounds are done in partnership w/ 2-3 other firms such as those mentioned above.

  • @Fredboulanger

    Wow great post, crystal clear. Insightful on what needs to be done. It’s so cool how my business could not be more different than yours and at the end of the day it’s still about thought leadership so you can compete better for the best deals out there. Cheers

  • It's great to see the Canadian VC scene evolving. The analysis, including the constructive criticism, is on point and is required to continue building the ecosystem.

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  • The tech investment industry is international. Terms sheets from SF, NYC, TLV, MTL, YVR and many other tech hubs are similar. Eventually, the state of the Canadian VC will have a pivotal role in this amazing country's innovation and growth potential. Great post Mark.

  • Great post, Mark – seeing the US and Canada as 2 separate investor / start-up markets does not make sense in the age of the Internet but I would rather see this as an opportunity, not a threat – Canadian VC's should and can play a bigger part in the US ecosystem, be it by raising money from US LP's or by investing in startups south of the border.

    • Would love to see Canadian gps raising from us LPs. We need to work on our returns first.

  • I'm pretty bullish on Canadian Entrepreneurial landscape and VC funds backing entrepreneurs for the long run and building huge companies in our own backyard. Great summary Mark. Looking forward announcing a deal or two with you guys shortly…