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.