Here are some truisms when it comes to Canada’s startup ecosystem:
- There is a lack of growth capital. Startups that want to hit the accelerator usually have to tap U.S. capital because there aren’t enough investors in Canada willing or able to step up to the plate.
- Canada’s venture capital sector isn’t as large or robust as it could be because many institutional investors are sitting on the sidelines after getting hammered in the 1990s.
- The Canadian government has been providing financial support through various programs, including direct investments through funds of funds. This activity has been fueled by a commitment to economic development and the lack of capital from private sources.
Amid some of the challenges, there is a strength: the vibrancy of startup communities across the country.
Driven by entrepreneurs, organizations such as Communitech, MaRS, Startup Edmonton, Launch Academy and Founder Fuel, it has been amazing to see the growing amount of support and cooperation. Only recently have different levels of government stepped into the fray such as the mayors of Toronto and Waterloo getting together to talk startups.
Given the health of the startup community, it was surprising to see an editorial in the Toronto Star by Richard Florida and Karen King that “Canada’s cities need a revolution of venture capital”.
The editorial touches several issues, including the lack of venture capital compared to the U.S., before landing on the problem facing Canadian startups: a lack of “connective fiber” that pulls together cities, universities, entrepreneurs, investors and government.
“One that is done, Canada’s cities can – and will – attract the venture capital they need“, ” the editorial opines, citing New York City as a benchmark given it had no startups or venture capital two decades ago.
With all due respect, the dearth of venture capital has little to do with a lack of “connective fiber”. Many of the pieces to attract venture capital are already in place, including smart entrepreneurs and world-class schools.
The missing ingredient is capital and a willingness to invest in high-risk startups. The Canadian startup community has been throttled by investors who only become interested when a startup has sales and customers. Until then, startups have to bootstrap or do whatever they can to succeed with seed capital.
In the U.S., it is a different scene. There is a bigger appetite for risk, including startups that are pre-revenue. And when a startup has momentum, there are many investors willing to get on the bandwagon.
Perhaps the most encouraging development for Canadian startups is the growing presence of U.S. VCs looking for promising startups. Lower valuations, the Canadian dollar and access to inexpensive talent means Canada is fertile ground for U.S. investors.
If Canadian startups can’t get the capital needed to succeed, here’s hoping the slack is picked by investors south of the border.
While Florida and King contend that urban networks and ecosystems need to develop to “power urban entrepreneurship”. I would argue these systems have already been established and they are becoming increasingly stronger.
Frankly, it’s not a matter of developing “connective fibre”, it’s simply of a matter of more money.
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