Why you need Canadian VCs

Screenshot 2015-07-30 12.41.34

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.┬áThat’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…. :)

  • http://blog.bmannconsulting.com/ Boris Mann

    I just realized that I know Fabio of Vistara from the PEER1 days (he’s great). And that they’re mainly a debt shop :(

    • http://robertsaric.com/ Rob Saric

      Vistara is mainly another Canadian ‘cherry-pick’ fund. Not very exciting.

      • http://startupcfo.ca/ Mark MacLeod

        I don’t know them, so can’t defend. but will say that more later stage capital in Canada is a good thing. Look at Omers. That’s a great portfolio. And they have helped Canadian companies go big

  • http://www.startupmanagement.org/ William Mougayar

    Re: being world class – that is a key evolution for Canadian vcs & angels too. The reality is there is a self-selection process that takes place. Startups pick investors, and vice versa based on what they think of each other.

  • Dominic Bortolussi

    Great post – I am curious about VC’s ‘helping with recruiting’. How much does that happen in Canada, vs NYC, vs SV? And what kind of recruiting is most common? Recruiting engineers, designers, product managers, QA teams, or recruiting other investors, advisors, bankers, lawyers?

    • http://startupcfo.ca/ Mark MacLeod

      It varies. Some examples: Georgian Capital helped Shopify find their payments leader. At Real Ventures they are working on what they call their ‘platform’ – a set of tech tools to enable things like recruiting. it happens a lot with management team hires. A little harder to do below that level.

  • bwertz

    Thanks for the post, Mark – good points! One additional comment: I am not sure if the differentiation between a Canadian or an US investor is generally a helpful one. In my opinion, you should only ask yourself what the right investor for your business is (does the investor get your business?; what’s their reputation?, etc.). Don’t think that nationality / geography is an important contributor to answering those questions.

    • http://blog.bmannconsulting.com/ Boris Mann

      Totally agreed!

      • http://startupcfo.ca/ Mark MacLeod

        BTW, there is Boris-only commenting policy on this post. All others will be censored out…

    • http://startupcfo.ca/ Mark MacLeod

      You don’t see patriotism with US investors? I do. At a country and city level. Especially city…

      The best and worst thing about Canada’s startup scene is it’s proximity to the US. Best because we have access to the Mecca. The world’s best companies and funds. Worst, for the same reasons. We have an inferiority complex. And we need to work harder. If we had our own captive local market it would be a different story. Germany is a great example of that. Connected to wider EU market, but a strong domestic market.

      So, while I would never counsel companies to pick an investor just because she/ he is Canadian, I do believe that we all have to work together to make our ecosystem stand out when it’s so close to the mother of all ecosystems…

      • http://www.tabillo.com Sanjeev Arora

        I totally agree with you Mark, similar to Germany is Tel Aviv where much of their early funding is through local investors until they get to global customers or higher yearly revenues. Tel Aviv is much stronger than Toronto/Vancouver just for this reason alone.

  • http://blog.bmannconsulting.com/ Boris Mann

    Oh, I understand fixing the Canadian private capital ecosystem. I’ve been working on it for a while.

    I didn’t ask why we need Canadian VCs — I asked what they have to offer that is at least a match for international investors.

    I will measure the quality of local investors on a global scale. So far, the majority have not stepped up to the needs of the ecosystem.

    At the $10M+ run rate, you have your pick of global investors.