Earlier today I blogged about the upcoming CVCA Annual Conference in Calgary next month and Brian Sharwood was kind enough to comment (he calls it a rant) on the post with his thoughts on Canada's Venture Capital Industry.
Sharwood is the President of Toronto Web 2.0 startup HomeStars - an online community connecting homeowners to home improvement companies through reviews - so he has some very relevant experience trying to raise money in recent years. Have a read and weight in if you like:
This is an important issue for Canada. While BDC and other similar groups are getting funded, entrepreneurs are not. I was asked a couple weeks ago to do a 'rant' for the Interactive Ontario Conference, IN09. I thought the essence of the speech should be public. Here it is:
Hi - My name is Brian Sharwood - I’m the President of HomeStars. As you might expect, we are raising money. We’ve been raising money since Nancy Peterson founded the company 3 years ago.
Now I could rant about the VC industry - but I haven’t seen many VCs in the room - and, really, that would be too easy! We all know raising money in Canada is hard - it’s especially hard in digital media - and even harder building platforms for digital media.
Our VC industry is bad.
So what I want to talk about is what I call the ‘entrepreneurship support’ industry. I believe that, in Canada, we invest a lot of money, in a lot of people who support a very small group of very poor entrepreneurs.
I’m going to pick on MaRS here a bit, but there are others I could pick on - NACO, BDC Canada, many folks in various economic development agencies - all organizations that receive funding from the government, sometimes significant funding, in order to help entrepreneurs.
I’m not saying this isn’t a noble task, and a necessary one, but maybe lets look at whether some of the money spent in these systems could be better spent actually on the company, rather than the support system.
So let’s look at numbers:
With a little basic calculation I estimate our total VC investment in Canada, including the pension funds, which tend to invest in much later stage companies is approximately $300-400M. So let’s make a little adjustment to remove the later stage VCs and make that number $200M.
Now lets take a look at some of the support organizations. MaRS alone spends ~$20M per year, supporting companies. NACO received government support of approximately a quarter of that - in order to organize such that they can help entrepreneurs. Add the various government economic development organizations across the country to this, and you soon probably reach the $200M we’ve actually invested in Entrepreneurs themselves.
Is there a solution?
There are many solutions, but perhaps a starting point is by understanding.
We should add a metric to this industry - a ratio of investment in industry support to actual investment in entrepreneurs themselves.
How about even just supporting VCs in developing an industry themselves? Loan money to good VCs at reasonable interest rates, with stipulations on the investment on where they can invest. Make sure they make the smaller investment in Canadian companies. VCs want to make money, and let them make it on the split. To give credit where it’s due, yesterday’s MRI announcement about the $250M investment fund was a step.
And one of yesterday’s panel had a great comment - “fund businesses, not projects” Good entrepreneurs are feisty and will find the way to make the most of that money. Large companies will have too much overhead.
Until that happens, I can tell you how you support yourself in Canada when you love entrepreneurship - don’t be an entrepreneur - they are funded by parents, spouses and their past employers. Enter the industry that supports them. It’s a good business.