I was sharing the news yesterday about Canada’s newest VC fund, Vistara Capital Partners, when my friend Boris Mann asked this question. My objective with this post is not to call Boris out. I’m sure many people ask the same question. But as a former Canadian VC and a huge fanboy of the Canadian startup scene, I feel pretty strongly that our companies should raise capital locally. Here’s why:
Local networks: The best companies can get money anywhere. It all looks the same. So, it’s the other stuff that differentiates capital. One area where VCs look to help is in recruiting. If you’re in Toronto, your SF-based investor can’t help much. Yes, their name brand might help. But they can’t actually help you. Whether it’s sourcing local team members, advisors, banks, etc. your homegrown VC can help.
CCPC status: There are huge tax advantages for founders, employees, Canadian investors and companies themselves to being a Canadian Controlled Private Corporation (CCPC). Having local investors on the cap table helps you keep that longer.
(In some cases) It can be harder to raise without local backers: Until you hit the growth stage ($10M+ revenue run rate), the investors that you approach will prefer to invest closer to home. That’s because there’s still a lot of work to be done to help your company become ‘real’. Help with building an exec team, process, etc. Once you’re in the growth stage, you have all these things. So, it’s easier for remote capital to invest. Their’s just less work to do.
Building HQ in Canada: I can easily list a bunch of startups that have compromised on how/ where they built out their head office in order to appease their US investors. I cannot overemphasize the importance of having large, anchor tenant, market-leading companies in our backyard. This is why the Valley/ SF is so powerful. It benefits from a virtuous cycle of large, local acquirers that buy local startups, spin off angels, experienced execs, hire university grads in droves, etc, etc, etc. We need way more of that here. And we won’t get it, if we move HQ to the US.
One of my clients was recently in SF talking to investors only to be asked: “when are you moving here?”. If we move HQ, then we’re destined to be ‘also rans’ in the tech ecosystem
We need strong local investors: SF would never work without the density of local capital that it has. Ditto for NYC and Boston. We need the same here. We need successful, connected VCs on the ground to help us build great companies.
I always look to have Canadian participation in the transactions I work on. That said, I never counsel my companies to compromise on investor quality. In the same way that Canadian startups need to compete globally, our investors need to do the same. The borders are coming down. Canadian startups can access US capital earlier than ever. So, we all need to be World class!
Boris, hope that answers your question…. 🙂