Canadian venture capital deal flow slowed down significantly in 2008 and reached its lowest level since 1996, according to a recently published report (pdf) by the Canadian Venture Capital Association (CVCA). Key findings include:
Quote from Gregory Smith, President of the CVCA and President of Macquarie Capital Funds Canada Ltd:
These statistics demonstrate the declining availability of capital in the venture capital industry, which has real repercussions for Canada’s ability to drive innovation and to develop the knowledge-based economy we need to compete effectively on the global stage...We are failing to capitalize on the potential of our entrepreneurs and small growth companies, which have traditionally been vital drivers of jobs and prosperity for Canadians.
Check out the full report here:CVCA Q4 2008 VC Press Release Final
The CVCA – Canada’s Venture Capital & Private Equity Association – represents the majority of private equity companies in Canada, with over... [more]
Most of the Canadian Venture Capital industry is government-financed. It is absolutely shameful for these pseudo investment bankers to be sitting on their piles of government cheese, collecting their management fees and snubbing entrepreneurs because they don't have the "perfect" deal.
a) Investors in other countries understand that you need to work to support your working capital to grow its value, rather than sitting back and waiting for somebody else to do it. Why does Canada have no Fred Wilsons?
) Management fees should be tied to investments made, particularly where public financing is used... but if I ran a pension fund I would be asking what they are doing with my money toot sweet.
c) Venture firms like BDC need to bring in seasoned entrepreneurs, rather than a parade of dithery self-serving MBAs, as partners and associates to complement their finance skill set.
Until then, the statistics of failure (failure to invest and failure to succeed) will serve as its own testament to the prospects for Canadian Venture Financing.
Well said Bill.
In Tom Friedman's latest column in the New York Times, he suggested the US government should fund VCs to fund the startups, instead of bailing out sinking ships like GM. With only just over $1 billion dollars invested by VCs in Canada last yr, and about $8 billion Canadian bailout for GM in the works, I think we need a similar debate here too. Fund the future or the past..
Bill, I take it you have never worked for the BDC? I'm not an apologist for the BDC, but why would any entrepreneur want to work there? Terrible pay (relatively speaking), incredible bureaucracy, and all the real decisions are made in a room in Montreal. They have who they have because that's who's willing to work there. Also, given the pay, the attraction is the work experience for someone fairly fresh and the government pension at the end of the day - not classic entrepreneurial drivers.
As for sitting on funds collecting management fees, if you look at fundraising you'll see the problem is not inactivity, its lack of money (other than the BDC). The LSVCCs are hitting big redemptions with little inflows, the traditional big private VCs haven't raised new funds in a few years, and the US guys are sticking closer to home. Also, on the private side, you can't sit long as the way management fees are structured they flip over to different calculations that pressure the investing after the first few years (depends on agreement but is usually roughly 3ish years). The way VCs make management fee money is to spray out the money and get another fund as soon as possible. Single funds don't make hordes of management fees, new big funds each year make piles of dough.
I agree with your general sentiment, but need to understand the mechanics a bit better. Bottom line, more experienced people investing money (experience doesn't help if you don't have money) will help entrepreneurs - whether it helps returns is another story (and I don't think you'll like my opinion).
I think it is great that the Canadian government is involved in venture capital. I am a VC in US.
You cannot blame the lack of successful startups in Canada on VCs. That's BS. VCs are a vehicle for cash, very little more.
