Venture Capital Rush Coming to Canada: American Investors Find Canadian Startup Ecosystem 'Sexy'

Posted by Louis Rheaume

Venture capitalists from the US and Canada reunited in Montreal last week during the annual conference CVCA conference.

"Whenever you see an imbalance between investment opportunities and capital available, you have a sexy place. And now, Canada fits this definition," said Paul Ferris, Azure Capital Partners, a venture capital firm based in Silicon Valley.

A panel entitled "Is Canada Sexy Now?" brought an unanimous “Yes” answer among those whose job is to bet money on the most promising technology companies in the hope of home-run investments. It should put the inferiority complex of technology entrepreneurs in Canada on the shelf.

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"Yes, Canada is sexy," affirmed Jit Sinha, senior partner of JMI Equity in Baltimore. "First, technical expertise is high. Second, there is significant government support to research and development."

"My answer to that is a vibrant yes," agreed Stephen Hurwitz of the firm Choate Hall and Stewart. He boasted of Canadian universities and the technological infrastructure of the country. "The result is an abundance of startups that make outstanding research and development," he added.

According to Sinha, the situation is far from new. Over the last 10 years, his firm has invested $160 million in nine countries in early stage technology companies. What changes, he said, is that the popularity that tech in Canada is getting across the word. The explosive growth of companies such as Beyond the Rack and Accedian Networks, to name two examples in Montreal, has clearly caught the attention of investors south of the border.

"When you see a company like Radian6 emerge from New Brunswick and dominate the world of social media, it strikes the imagination," Lee Anthony, a Canadian exiled to Silicon Valley and now a Senior Partner of Altos Ventures, illustrated at the event.

In Silicon Valley, VCs trying to invest in the next Google find themselves chasing the same prey. Thus, the results are that the auction goes up and signed checks are spreading. Several participants at the conference expressed a belief that a tech bubble currently exists—but is limited to Silicon Valley.

Canada is experiencing a reverse situation. The local financial community is smaller, so competition is less fierce.

"I would not say there are bargains to be done in Canada, says Ralph Terkowitz of ABS Capital, Washington. The market seems to me comparable to what is seen throughout the United States. Silicon Valley is really the exception."

After emerging markets , US VC s are in search of promising new territories they are  finally beginning to look north of the 49th parallel.  In March 2010, the Canadian government has facilitated their life by changing the definition of "taxable Canadian property" applies to foreign investors in Article 116 of Law. "Before, between two comparable transactions, investors chose to invest in the U.S. to avoid legal complications and costs associated with section 116. Today, the playground is the same for everyone. The impact is significant, "said Paul Ferris of Azure Capital.

Americans are also pleased by the fact that the Harper government announced in its latest budget an amount of $400 million by 2020 for venture capital.   Several U.S. investors want the Canadian venture to recover quickly, in order of having strong local investors to partner with.

"We'll see if the Canadian government can deploy this money in order to build a venture capital industry robust, sustainable, private, independent and market-oriented, said Steve Hurwitz, Boston. This is the big question that remains, and we will follow closely. "

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Louis Rheaume

Louis Rheaume

Mr. Rhéaume has the scholarity of a doctorate in business administration, concentration in strategic management, innovation management and corporate finance. He holds a Master’s degree in finance. He has numerous years of experience in consulting, strategy, financial analysis and business intelligence, mainly in the telecommunications and computing industries. He has also been a researcher in... more




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