Kudos to the Harper Government's Position on Venture Capital

Posted on February 13 2013 | Author: Dave Smardon

Back in the spring of 2012, Harper’s announced budget included a provision of up to $400 million in funding; funding that was to bolster the Canadian venture capital community. Since that announcement, things went terribly quiet over the summer and fall. Many of us were left anxiously awaiting the federal government’s follow on announcement as to exactly how this money was to be allocated. It turns out that the government did its homework over the summer. They contracted Mr. Sam Duboc, a well respected venture capitalist in Toronto and the founder of Edgestone Capital, to review the state-of-the-nation within the investment community and to subsequently make recommendations on how to best utilize the $400 million.

Mr. Duboc presided over numerous “think tanks” that were held across the country. In attendance were venture capitalists, fund-of-fund investors, private equity players and financial institutions. While the process has taken much longer than any of us expected, the recommendations were recently announced.

Without going into too much detail, the $400 million is to be dispersed across four basic areas. They are:

1. Support for two National Fund-of–Funds organizations that will ultimately support both the creation of new and capitalization of existing, venture capital firms.
2. Support for existing provincial fund-of-funds organizations provided they become national in scope. This in effect removes many of the strings that provinces typically require of investors, such as investing capital only in their provinces.
3. Direct investment in a small number of leading venture capital firms to help attract new investment to these firms and to Canada
4. Support for the venture infrastructure industry, which would include organizations such as incubators, accelerators and angel groups.

To build a sustainable venture industry will take time and much more than $400 million. But as a catalyst, this capital should help attract at least three to five times that amount into the Canadian investment sector. To build a sustainable venture industry, will take time and this is a great start.

While devil is always in the details, congratulations to Sam Duboc for keeping the implementation of these new programs under the management of the private sector and kudos to the Harper government for doing this right, allowing industry to fix the problem?

Click here for more infomation about the Prime Minister's announcement regarding the plan to strengthen venture capital investment in Canada.
 

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The State of Angel Investing

Posted on August 02 2011 | Author: Dave Smardon

I was talking to an entrepreneur (let's call him Bob) the other day about the challenges of starting up a technology business in Canada. Bob raised a number of issues from the Canadian tax system to the difficulty of finding good experienced people. However, it wasn’t long before the subject of venture capital took the spotlight. He said that raising capital was the greatest challenge facing entrepreneurs today. It is hard to argue this point. I remember the crazy Internet period from 1996 through 2000, when Canada had nearly 200 venture capital companies, and the vast majority were competing for early stage investments. They all had surpluses of capital and were anxious to invest it. Today, it’s hard to find any venture capital firm that actually has money to invest, and those that do have gravitated towards more mature companies and management buy-outs. So, who fills the investment space vacated by our once thriving venture capital sector? Well, regrettably the answer must be angels!

Angel investment groups have been around for many years, particularly in Toronto, Ottawa and Vancouver. For a long time, the criticism was that they rarely “pull the trigger” on an investment, spending more time in networking and schmoozing than reviewing investment opportunities. Furthermore, many of the angel groups were comprised of what we called “angel wannabees”, individuals who wanted to be perceived as angel investors, and professionals such a lawyers, accountants, bankers and real estate agents, all looking for future business. Of course, the poor entrepreneur who was presenting to these groups would be unaware that 75% of the room had no interest in investing at all, and in fact they had no capital to invest.

Within the last couple of years, Canada’s angel community seems to have grown and matured. Thanks to government support programs, formal angel groups are springing up all across the country. Many of these angel organizations are still learning how to manage and coordinate their angel investors, not an easy task. However, one would think that the increased angel activity would be good news for entrepreneurs like Bob. I asked Bob if he had approached angel groups. His response was a rather flippant “been there”, “done that” as he had presented to five separate angel organizations in the past six months. Bob described his experience as unfruitful, time consuming and frustrating. In some groups, Bob was able to have private conversations with angel members only to find that several of them were professionals looking to get business from Bob’s company. He also suggested that Canadian angel groups really don’t cooperate or co-invest very often, but rather, they tend to be somewhat self-centred as they invest only within their local geographies. 

Talking to Bob, it sounds like the more things change; the more they stay the same. Perhaps the angel investor community cannot fill the gap left by past venture capital firms. While we wait for our angel community to mature, the lack of investment capital for early stage technology companies continues with no apparent solution on the horizon.

Bob did get the capital for his company. He raised $2 million from investors in the United States.

For your further reading, you might find the NACO’s recent report Investment Activity by Canadian Angel Groups: 2010 Report of interest.
 

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