Winston Churchill may have called Canada the linchpin of the English-speaking world but the World Economic Forum feels slightly differently, positioning Canada just outside the top 10 of its 2011-12 Competitiveness Survey, a slight decline year-on-year.
The Canadian Venture Capital Association (CVCA) monitors the investment situation in the country in a more precise manner, releasing quarterly reports, co-authored by research partner business data firm Thomson Reuters, that track investment and fundraising for a variety of venture funds.
The results of the latest report, covering the second quarter of 2011, make illuminating reading. Overall investment was down 2% year-on-year, though the average investment dropped year-onyear from C$2.8m (US$2.8m) to C$2.4m.
However, the report also showed that Canadian start-ups are receiving a bigger slice of available funding, with the number of Canadabased firms receiving venture investment up 13% from the first half of last year, indicating a higher number of firms receiving smaller slices of funding from an investment market playing it safe in the economic downturn.
Perhaps more ominous are the figures for fundraising. According to the CVCA report, fundraising dropped almost 50% year-on-year for the first half of the year and is currently proportionately far less than the neighbouring US, though the number of companies receiving investment in Canada remains proportionately higher.
This follows a fundraising figure for 2010 that itself marked a 16-year low for the country, pointing to a possible continuing stagnation in investment.
This is backed up by World Economic Forum figures. A recent study by the forum cited a lack of access to financing as a problematic factor for Canadian business owners.
Interestingly, however, the same study also placed Canada ninth in the world
in local equity financing, ahead of every large economy outside Asia.
The figures were obtained through the forum’s Executive Opinion survey and so should be taken more as a measure of opinion than solid fact, but they do back up the CVCA figures, showing that the level of investment is a bigger problem than its absence.
Local government has at least shown signs of supporting venture investment. Prior to its re-election, albeit as a minority provincial government, in Ontario, the incumbent Liberal Party’s pledges in the run-up to the recent election included following the lead of British Columbia in granting tax credits to angel investors and institutions willing to provide seed funding for start-ups.
Canadian national newspaper the Globe and Mail reported the credits could be worth as much as 35%, though the plans were still being finalised at the time of the policy announcement last month.
Ontario is not alone in this approach. Richard Remillard, executive director of the CVCA, said: "[Investment] supply has been withdrawn from the system for the past 10 or 11 years. In 2000, the industry invested just over C$6bn and in 2010 a shade over C$1bn.
At the same time there is every indication demand has gone up ferociously, in part because the activities of governments and the private sector have piled money into research and development (R&D) in this country. That has been creating considerable demand on behalf of entrepreneurs.
"Governments have become more sensitised to the importance of venture capital as an industry for getting to where they want to go. Governments have huge, huge amounts of money invested in R&D. By some estimates Canada is putting in C$9bn to C$10bn a year through various programmes and governments like to see a return on their investment."
Local governments in Canada are certainly looking at venture capital as an option, with many putting money towards fund-of-funds initiatives to spearhead local investment. In 2008, British Columbia launched its BC Renaissance Capital fund and Alberta formed the independently managed Alberta Enterprise Corporation to aid the development of the local economy.
The two have since been joined by the C$205m Ontario Capital Growth Fund, the financing of which was made up of C$90m from the government of Ontario and C$115m from five private sector partners, and Agnes Québec, which
fulfils a similar function for Québec.
As for sectors, Remillard adds: "On the tech side … it has been fairly consistent over a number of years. Anywhere from 40% to 50% will be in information and communication technologies, another 25% to 35% in life sciences, and the balance increasingly in clean-tech, which has grown quite smartly relative to where it was five years ago, when it was a blip."
Life sciences are a particularly significant factor in Québec, whereas Ontario’s venture capital tends to lean more towards what Remillard refers to as "the broad telecom space", with telecommunications companies Rogers
Communications and Telus both overseeing notable funds, alongside Blackberry Partners Fund (BPF). BPF was formed in 2008 with backing from Blackberry manufacturer Research In Motion (RIM), and numbers fellow corporates Thomson Reuters and Royal Bank of Canada among its backers, with involvement from Canadian venture capital firms JLA Ventures and Ontario Venture Capital Fund.
Appropriately, considering RIM has taken a lead role in two BPF funds as well as extending its branding, BPF’s focus lies in mobile computing, with nearly 20 firms currently in its portfolio.
However, BPF’s focus is international rather than Canadian, its investment footprint covering North America, the UK and Israel thus far, and with the launch of its second fund this year BPF looking to expand its reach into additional territories.
As Kevin Talbot, managing partner at BPF, states: "In Canada we have a dual challenge of not enough capital chasing too few globally competitive entrepreneurial opportunities. No venture capital manager can be successful if they are artificially constrained geographically."
Telus Ventures, the corporate venturing arm of Telus, acts in a similarly international manner, although the fledgling portfolio of Rogers Ventures, launched this year, points to the possibility of a more local approach, being mainly made up of tech firms local not only to Canada but to Rogers’ locale of Toronto.
And new ideas are needed if Canada is to make it way out of what is now a
lengthy dip in its venture industry. Talbot on the whole is against government
regulation but suggested what is needed is a parallel to Silicon Valley in the US or Skolkovo in Russia, where Canadian engineers can attract investment capital as they innovate.
He said: "Canada right now is still chiefly a resource-based economy and it needs to grow its innovation economy, starting with students entering university.
"We need more students, pursuing technical degrees, who are interested in starting businesses as opposed to just finding a job. There needs to be more of an emphasis on entrepreneurship in our universities for these students and we need to cultivate a stronger entrepreneurial ecosystem to support them in their endeavours."
Remillard, for his part, is carefully optimistic. "Despite a challenging fundraising environment, there are funds that are beginning the investment cycle and a surprising number of new funds are emerging out of the blue.
"While the initial public offering (IPO) environment remains incredibly challenging [Canada-based companies have averaged one IPO a year since 2008, down from 12 in 2007], merger and acquisition activity and company valuations are picking up nicely too, so you get the sense that the earth is beginning to move. But we are being very cautious."