VC growing in Canada but still lagging

It is a given that Canadians are not the risk takers that our southern brethren are, but it appears as though, when compared to the rest of the industrialized world, we’re not really risk takers period.

During the 2001 Incubation and New Ventures conference, held recently in Toronto, Arthur Carty, president of the National Research Council in Ottawa noted that Canada is ranked tenth on per-capita venture capital investment among industrialized nations.

But Carty was quick to point out that he thought the situation is much improved. “Canada’s venture capital market has shown spectacular growth…and change in the past few years,” he said. He continued by citing statistics that projected Canada’s venture capital industry invested $5 billion in 2000, a near doubling of the $2.7 billion invested in 1999.

“Much of that VC investment is headed toward high-tech,” he added. In fact he presented a slide that indicated that technology companies attracted 80 per cent of venture capital investments in 1999.

But spectacular growth notwithstanding, why is Canada not higher up the venture capital investment ladder?

David Schultz, co-founder and managing director of Ventures Inc. in Vancouver, put it rather bluntly: “We are very slow to adapt to new technologies…slow to invest as a whole,” he said. “Too slow, too cautious…just far too slow.”

Brenda Valois, director for new business commercialization for Nortel Networks in Ottawa, agreed that Canada has a cautious culture but one that may be more perceived than real. She said many start-ups go immediately to the U.S. for financing because they mistakenly believe Canadian companies and individuals won’t open the cheque book to help develop a new idea or technology.

IdeaPark works with start-ups, helping them work out the kinks they may have in such areas as business strategies, financing and market expertise, not the traditional strong suits of the start-up.

Schulz pointed out that many start-ups end up spending too little time focusing on product and client development and too much focusing on what photocopier to lease and the best cell phone plan for the company.

The idea is for a company like ideaPARK to help with the mundane, he said.

Valois talked about Nortel’s involvement as an angel investor for internal programs and some of the difficulties that exist when start-ups grow from within the corporate culture. She called it dancing with an elephant, since start-ups require far more nimble operations than the corporate parent.

There is also the inevitable clash of cultures. The beer-in-the-fridge mentality vs. the triplicate-paperwork-to-change-your-parking-space people. She said often the start-up wants control of the money but for the parent company to foot the bill. Ah, college all over again.

She said the solution is often to build the new company outside the corporate parent. Schultz agreed. “A start-up within a company can create distractions for the other employees.”

Yet such an approach often turns out to be fruitful for both parent and child. Entrust, the public-key infrastructure company, started off as the Secure Networks group at Nortel. An original $10 to $15 million investment helped create a company with a market cap of $1.8 billion, Valois said.