The VC dilemma

Canadians don’t exactly have a reputation as risk takers. We are an easy-does-it, look-both-ways, get-plenty-of-rest kind of people. We’re Clark Kent to the American Superman. So when it comes to venture capital spending, we are miles behind the Yanks, right? Wrong.

When it comes to IT venture capital spending, except for a few insane years at the end of the last millennium, Canada is on par with the U.S. based on our respective GDPs.

But being Canadians, we inherently assume that anything involving risk and big bucks is the domain of the Americans. Let’s face it, neither our economy nor population will likely ever equal the U.S. But relative to the size of the two populations and economies we are mostly equal – and sometimes ahead.

So where does the perception come from? Up until the mid-1990s, total American venture capital spending was about 13 times that of Canada: a little higher than Canada based our gross domestic product (12.8 times ours), about 50 per cent higher based on population (8.8 times larger).

But by the late ’90s the Internet had taken the world by storm and, ever the opportunists, Americans led the charge.

“If you had a pulse and a neat haircut you were probably going to get funded,” said Ted Anderson, partner with Ventures West Management Inc. in Toronto. “We didn’t get into a lot of the dot-com stuff with quite the same enthusiasm as a lot of the U.S. companies did.”

And therein lies the basis the perception. Prior to the rise of the Internet, VC funding was well established both north and south of the border – but no one really took notice. Then the market rallied around a “new way” of doing business. Stock prices soared and VCs clamoured to get in on the action.

“There were a lot of people who overestimated their own intelligence and were throwing money at ideas that were less than solid,” Anderson said.

“We didn’t rise to the same heights that the Americans did in 2000, nor did we crash and burn like the Americans did in 2001,” said Kevin Goheen, partner with Ottawa based-StartingStartups Capital Corp.