in Angel Investors

How Startups will save Venture Capital in Canada

Last night I pitched the audience for the second time on How Startups Will Save Venture Capital in Canada. I first gave this talk in Moncton at Third Tuesday NB and the response was great.

The title is “Why Startups Will Save Canadian Venture Capital”, and it doesn’t let anyone off the hook. It isn’t a criticism, but instead it is an analysis and a call to action for both Angels, VCs and Entrepreneurs. Things are pretty busted up right now and it is time to start talking about what we need to do to make a difference.

My thesis is simple: Startups just aren’t getting started in Canada nearly as often as they should. This isn’t about education levels, creativity or even for a lack of cash floating around this country. This is about ambition.

This is about hustle.

Most entrepreneurs have heard that things aren’t great for VCs right now. LPs are shaky, some funds are crashing, others are just throwing their hands up, and for a lot of startups it seems like no matter how many people you pitch, you aren’t getting anywhere. I tried to put some hard number behind that, and they paint a scary picture.

This goes two ways, and nobody wants to sit around while we all whine and moan that nobody can get funded. It’s time to build companies that are worth something.

We need to focus on building our local startup communities more than ever. Local communities are important because they are far easier for local Angels and Entrepreneurs to connect to, and they also act as a great filter to help find people who need national and international exposure.

Smart funders are going to see these communities as huge opportunities. There ROI for VCs getting connected to the startup community is not only obvious, but well documented. In the US we see VCs hustling in a way that you just don’t see much of here in Canada. Every time I hear a VC rant on about how Canadian entrepreneurs aren’t aggressive enough, it drives me nuts, because they are no different.

It is great to see Third Tuesday’s taking off on the east coast, and events like DemoCampEdmonton really starting to get going (there are 90 signups for their next one!), but we also need to focus on making sure that there are Startup-focused events where people need to answer to questions about their market, operations and sales.

If we can get early stage companies off the ground, then the outlook for VC in Canada starts to look a lot different. Canadian funds will have to compete against American money, but they will start to get to see great ideas and entrepreneurs at the early stage. There are a few missing pieces to this plan, but the point is that it is time for us all to stop fretting and just get on with it.

If we can build amazing startups, the money will find its way.

This is my manifesto for saving Venture Capital. It isn’t sexy, but it just might work.

*because someone inevitably does not “get it” — the comic strip at the top is a JOKE meant to characture what some would say is the VC impression of entrepreneurs, and the entrepreneurs impression of VCs.

58 Comments

  1. Great call to action. I must admit I haven’t been as involved in the Canadian scene as I should be – this should help get me out to a few more community events. Thanks!

  2. Great call to action. I must admit I haven’t been as involved in the Canadian scene as I should be – this should help get me out to a few more community events. Thanks!

  3. Wow. Love it. Keep preachin’ to the next generation!

    Two thumbs way up!

    PS. Are we doing this canadian barcamp this fall? Distributed and coordinated maybe?

  4. Wow. Love it. Keep preachin’ to the next generation!

    Two thumbs way up!

    PS. Are we doing this canadian barcamp this fall? Distributed and coordinated maybe?

  5. OUTSTANDING JEVON, TRULY OUTSTANDING.

    I applaud your analysis and your attitude.

    In the west, something quite different is happening. Angel investing and entrepreneurship seem to be taking off. This post on Techvibes summarizes my recent observations in Vancouver: http://www.techvibes.com/blog/angel-investing-taking-off-in-bc/

    Anybody have any ideas why this is happening out here, but no so much in Central Canada?

    Keep up the great writing and conference presentations – that WILL make a difference.

  6. OUTSTANDING JEVON, TRULY OUTSTANDING.

    I applaud your analysis and your attitude.

    In the west, something quite different is happening. Angel investing and entrepreneurship seem to be taking off. This post on Techvibes summarizes my recent observations in Vancouver: http://www.techvibes.com/blog/angel-investing-taking-off-in-bc/

    Anybody have any ideas why this is happening out here, but no so much in Central Canada?

    Keep up the great writing and conference presentations – that WILL make a difference.

  7. Sing it brothers… the challenge is Toronto has the critical mass to pull this off. Does Vancouver? Montreal? What about smaller places?

  8. Sing it brothers… the challenge is Toronto has the critical mass to pull this off. Does Vancouver? Montreal? What about smaller places?

  9. Love the post, Jevon. GrowthWorks is ready to invest in great start-ups practically anywhere in Canada and we have been pretty active lately with promising companies like Octopz, Ontogenix, Targeted Growth, Camilion, xKoto, Paymentus, Blueprint, PlanetEye, Covarity, Med-Eng, Cythochroma, … You get the idea and I’m only dropping the names of a few companies managed through our Toronto and Ottawa offices.

    Please get in touch with me or any of my colleagues if you’d like to chat about an investment from us. http://www.growthworks.ca/ourteam/investment/location.aspx

  10. Love the post, Jevon. GrowthWorks is ready to invest in great start-ups practically anywhere in Canada and we have been pretty active lately with promising companies like Octopz, Ontogenix, Targeted Growth, Camilion, xKoto, Paymentus, Blueprint, PlanetEye, Covarity, Med-Eng, Cythochroma, … You get the idea and I’m only dropping the names of a few companies managed through our Toronto and Ottawa offices.

    Please get in touch with me or any of my colleagues if you’d like to chat about an investment from us. http://www.growthworks.ca/ourteam/investment/location.aspx

  11. Mark – I can think of quite a few new VC fundings actually.

    A sample of new deals of the top of my head that have closed this year (all from Canadian-based funds I know are very actively looking to invest in great companies with great promise)…I’m sure I have missed a bunch, including those from non-Canadian-based funds…

    – Ontogenix (GrowthWorks)
    – Receptor Therapeutics (GrowthWorks)
    – Impath Networks (GrowthWorks)
    – Glassbox (JLA Ventures)
    – Netshelter (JLA Ventures)
    – Igloo (RBC Venture Partners)
    – AideRSS (Tech Capital Partners)
    – Standout Jobs (Inovia Capital)
    – AdCentricity (Propulsion Ventures)

    Nobody will disagree that the Canadian VC landscape has seen better days, but great deals featuring strong people, technology and market opportunities are still getting done.
    R.

  12. Mark – I can think of quite a few new VC fundings actually.

    A sample of new deals of the top of my head that have closed this year (all from Canadian-based funds I know are very actively looking to invest in great companies with great promise)…I’m sure I have missed a bunch, including those from non-Canadian-based funds…

    – Ontogenix (GrowthWorks)
    – Receptor Therapeutics (GrowthWorks)
    – Impath Networks (GrowthWorks)
    – Glassbox (JLA Ventures)
    – Netshelter (JLA Ventures)
    – Igloo (RBC Venture Partners)
    – AideRSS (Tech Capital Partners)
    – Standout Jobs (Inovia Capital)
    – AdCentricity (Propulsion Ventures)

    Nobody will disagree that the Canadian VC landscape has seen better days, but great deals featuring strong people, technology and market opportunities are still getting done.
    R.

  13. Roger, thank you for the list.

    Being in the VC biz, can you comment on why Canadian VC’s tend to (appear to) follow the US lead, meaning invest in sectors that have an established following, and do not venture into unchartered territories? The deals you list mostly sound like betterments/improvements and not industry making/changing investments (not to say they are not good). Are Canadian VC more risk averse than US VCs for a particular reason or is this just cultural? Are Canadian VCs B2B oriented with minimal or no appetite for consumer oriented investments – why is this? Am I miss reading/understanding the Canadian VC?

  14. Roger, thank you for the list.

    Being in the VC biz, can you comment on why Canadian VC’s tend to (appear to) follow the US lead, meaning invest in sectors that have an established following, and do not venture into unchartered territories? The deals you list mostly sound like betterments/improvements and not industry making/changing investments (not to say they are not good). Are Canadian VC more risk averse than US VCs for a particular reason or is this just cultural? Are Canadian VCs B2B oriented with minimal or no appetite for consumer oriented investments – why is this? Am I miss reading/understanding the Canadian VC?

  15. I can only speak for myself. I would never try to speak for Canadian VCs in general. “Who is funding what” doesn’t kick-start or dominate my thinking about any particular opportunity. The funding situation of a given company’s competitors is just one of the dozens of things I form an opinion on with respect to the deals I humbly think are worth looking closely at.
    R.

  16. I can only speak for myself. I would never try to speak for Canadian VCs in general. ?Who is funding what? doesn?t kick-start or dominate my thinking about any particular opportunity. The funding situation of a given company?s competitors is just one of the dozens of things I form an opinion on with respect to the deals I humbly think are worth looking closely at.
    R.

  17. Roger,

    Thanks for the list. Given that JLA is lead in my current company I should have known about a couple of them at least. I thought Standout was last year. Glad to see Growthworks is active. Wish you could be in Quebec. We have some interesting stuff going on here.

    Mark

  18. Roger,

    Thanks for the list. Given that JLA is lead in my current company I should have known about a couple of them at least. I thought Standout was last year. Glad to see Growthworks is active. Wish you could be in Quebec. We have some interesting stuff going on here.

    Mark

  19. This analysis reminds me of Cities and Ambition by Paul Graham

    “Great cities attract ambitious people. You can sense it when you walk around one. In a hundred subtle ways, the city sends you a message: you could do more; you should try harder.”

    Great analysis. Very inspiring!

  20. This analysis reminds me of Cities and Ambition by Paul Graham

    “Great cities attract ambitious people. You can sense it when you walk around one. In a hundred subtle ways, the city sends you a message: you could do more; you should try harder.”

    Great analysis. Very inspiring!

  21. Thanks for a fantastic post. We have just completed our prototype, and we are either:
    a) Going to bootstrap it to market (the slow train)
    b) Get into bed with VC cash (the scary fast train)
    c) To hell with Canada and head to Silicon Valley where access to capital and market is alot easier (the techcrunch train)

    P.S. Great blog…thanks for keeping the dream alive ;)

  22. Thanks for a fantastic post. We have just completed our prototype, and we are either:
    a) Going to bootstrap it to market (the slow train)
    b) Get into bed with VC cash (the scary fast train)
    c) To hell with Canada and head to Silicon Valley where access to capital and market is alot easier (the techcrunch train)

    P.S. Great blog…thanks for keeping the dream alive ;)

  23. Startups are having a tough time getting funded because VC’s have no money…..VC’s have no money because their performance is crap…. VC’s performance is crap because the startups they fund don’t give them the return they need….startups don’t give the returns becuase 1: they sell out too early or 2: they fail…and it just keeps going around.

    I’m just calling it like I see it. I don’t know what the answer is. But I think Jevon’s title is right. Only when Canada produces super companies that generate super returns will local VCs be able to raise more money to fund more startups – money always follows success!

    So, get out there and build that next goog/amzn/msft/aapl… ’cause that’s what will save us all!

  24. Startups are having a tough time getting funded because VC’s have no money…..VC’s have no money because their performance is crap…. VC’s performance is crap because the startups they fund don’t give them the return they need….startups don’t give the returns becuase 1: they sell out too early or 2: they fail…and it just keeps going around.

    I’m just calling it like I see it. I don’t know what the answer is. But I think Jevon’s title is right. Only when Canada produces super companies that generate super returns will local VCs be able to raise more money to fund more startups – money always follows success!

    So, get out there and build that next goog/amzn/msft/aapl… ’cause that’s what will save us all!

  25. 100% agree with symbiosis. The solution revolves around business performance.
    Jevon made an excellent point around the timing of VC investment and that there may be an opportunity for a microfund where money goes in earlier and smaller. I would say that a fund that issues NO MORE than $500K may merit further analysis to get the VERY early tech opportunities that perhaps would never gets beyond a thought some money and opportunity to grow and develop. Some analysis is required to understdn whether having more money at very early stages (versus bootstrapping) would have any impact on success.

  26. 100% agree with symbiosis. The solution revolves around business performance.
    Jevon made an excellent point around the timing of VC investment and that there may be an opportunity for a microfund where money goes in earlier and smaller. I would say that a fund that issues NO MORE than $500K may merit further analysis to get the VERY early tech opportunities that perhaps would never gets beyond a thought some money and opportunity to grow and develop. Some analysis is required to understdn whether having more money at very early stages (versus bootstrapping) would have any impact on success.

  27. Great post Jevon. I wish there was audio to accompany the slides. :)

    The root of the reason VCs don’t do a lot of early stage seed investment is that they are paid a percentage of their fund, so the incentive is to have the biggest fund possible. That creates two problems with doing early stage investments. One, you can’t invest a large fund in 10 – 50k chunks. Two, the time requirement to vet and add value to a lot of little investments doesn’t scale.

    To solve the problem you need to change the incentive model, or come up with a different mechanism…perhaps even both.

  28. Great post Jevon. I wish there was audio to accompany the slides. :)

    The root of the reason VCs don’t do a lot of early stage seed investment is that they are paid a percentage of their fund, so the incentive is to have the biggest fund possible. That creates two problems with doing early stage investments. One, you can’t invest a large fund in 10 – 50k chunks. Two, the time requirement to vet and add value to a lot of little investments doesn’t scale.

    To solve the problem you need to change the incentive model, or come up with a different mechanism…perhaps even both.

  29. Great slide show with some interesting ideas. I agree with most and disagree with a few. I agree that the current Canadian venture capital model is broken. How do we fix it? Imagine you had $100 dollars to invest. Would you give it to the mutual fund manager that was came from a different industry and was learning the business or a mutual fund manager with a track record? Canada has decided to go with the first choice. I know or have met most of the GPs in Canada and they are ex-entrepreneurs, former bankers, or ex-industry guys. I was trained at a VC fund in the USA and it takes at least seven years to learn the ropes before you become a GP. It also takes at least $30M to train a GP between bad investments, recaps, and workouts. It is hard as hell to break into the business, hard to survive and hard to become a GP…..it is a time proven model. Canada does not have the experience but gives money to inexperienced GPs……STOP!!!!! You have lots of Canadians working at VCs in the USA….lure them back or hire some talent. Okay that was #1. My second point is shut down all the labor sponsored funds….why did the government keep a broken model alive? I have no idea, nor does any US venture firm. You must be saying….great….you’ve just wiped out the existing GPs and most of the existing funds boy genius. I know from experience that it is much better to start with a clean slate……fund issues, failed GPs, good money after bad are more than enough to guarantee failure. Jevon is correct that there is a lack of seed funding. I believe that EDC/BDC have a role, yes government is good!!! The USA venture industry got its start this way by taking military and other government pet projects and research to build companies. Again, they must be held accountable and hire the right people. BDC’s portfolio is in tough shape but they are trying and EDC is just starting. The other gap seldom talked about is beyon series C,D,E. Canadian VCs spread the little money they have across too many deals and run out of dry powder later. They try to get US VCs to invest…who do so happily at a down round and own a big chunk of the company. Therefore, we need a tactical later stage fund to pick the best companies and help them to the finish line. Stop going to the USA market!!!!! Okay….I’ve got about ten other points (tax structure, tech spinout, etc) but I’m starting to sound ‘preachy’ and making myself nauseous. Canada is a great country but this stuff is hard and the answers are sometimes painful.

  30. Great slide show with some interesting ideas. I agree with most and disagree with a few. I agree that the current Canadian venture capital model is broken. How do we fix it? Imagine you had $100 dollars to invest. Would you give it to the mutual fund manager that was came from a different industry and was learning the business or a mutual fund manager with a track record? Canada has decided to go with the first choice. I know or have met most of the GPs in Canada and they are ex-entrepreneurs, former bankers, or ex-industry guys. I was trained at a VC fund in the USA and it takes at least seven years to learn the ropes before you become a GP. It also takes at least $30M to train a GP between bad investments, recaps, and workouts. It is hard as hell to break into the business, hard to survive and hard to become a GP…..it is a time proven model. Canada does not have the experience but gives money to inexperienced GPs……STOP!!!!! You have lots of Canadians working at VCs in the USA….lure them back or hire some talent. Okay that was #1. My second point is shut down all the labor sponsored funds….why did the government keep a broken model alive? I have no idea, nor does any US venture firm. You must be saying….great….you’ve just wiped out the existing GPs and most of the existing funds boy genius. I know from experience that it is much better to start with a clean slate……fund issues, failed GPs, good money after bad are more than enough to guarantee failure. Jevon is correct that there is a lack of seed funding. I believe that EDC/BDC have a role, yes government is good!!! The USA venture industry got its start this way by taking military and other government pet projects and research to build companies. Again, they must be held accountable and hire the right people. BDC’s portfolio is in tough shape but they are trying and EDC is just starting. The other gap seldom talked about is beyon series C,D,E. Canadian VCs spread the little money they have across too many deals and run out of dry powder later. They try to get US VCs to invest…who do so happily at a down round and own a big chunk of the company. Therefore, we need a tactical later stage fund to pick the best companies and help them to the finish line. Stop going to the USA market!!!!! Okay….I’ve got about ten other points (tax structure, tech spinout, etc) but I’m starting to sound ‘preachy’ and making myself nauseous. Canada is a great country but this stuff is hard and the answers are sometimes painful.

  31. I couldn't agree more with you Craig. Building small communities that address the different needs of startups is a must. I have been trying to be involved with Toronto startup communities and I take something away from them every single time (whether it is finding about a new business, finding a contact or finding a good friend).

    I graduated a year ago from UofT and believe it or not, there are many who like to start their own startup and have great ideas. The problem is that it is not that accessible. These events can be great starting points to get the students involved and that's where great new ideas can come from.

    On the same note, are there any Angel/VC Investment events out there? A way for founders to get in touch with Angels/VCs to talk and to get a dialogue going on?

    Thanks Craig,

    Rokham

  32. Sorry Jevon, I thought Craig wrote this article. My apologies.

  33. I couldn’t agree more with you Craig. Building small communities that address the different needs of startups is a must. I have been trying to be involved with Toronto startup communities and I take something away from them every single time (whether it is finding about a new business, finding a contact or finding a good friend).

    I graduated a year ago from UofT and believe it or not, there are many who like to start their own startup and have great ideas. The problem is that it is not that accessible. These events can be great starting points to get the students involved and that’s where great new ideas can come from.

    On the same note, are there any Angel/VC Investment events out there? A way for founders to get in touch with Angels/VCs to talk and to get a dialogue going on?

    Thanks Craig,

    Rokham

  34. Sorry Jevon, I thought Craig wrote this article. My apologies.

  35. Private Equity’s New Entrepreneurs

    They run their own firms, seek out smaller deals that don’t generate headlines and make returns that are on par with the big boys

    Jean Marc Lopez arrived on Wall Street in the early 1990s, just as a trader and consultant in private equity, venture capital deals. He oversaw several IPOs and acquisitions.

    Jean Marc Lopez is the is an international entrepreneur and private equity/venture capitalist. He is the founder and managing partner of A-Venture Capital, he is part of a new generation of private equity entrepreneurs who run their own shops.

    Jean Marc Lopez’s firm operate far from the spotlight, because they tend to focus on deals that don’t generate headlines. But the returns on smaller deals that don’t capture public attention can be just as high, if not higher. In 2000, New Mountain took control of Strayer, a publicly owned operator of colleges, for $115 million; it later sold its stake for five times its money.

    Private equity entrepreneurs often work well beyond public view, making innovative deals and creating new markets.

    Regarding the Financial crisis Jean Marc Lopez says that entrepreneurs who enter the market today will also be well-positioned to take advantage of an increase in private equity investment. The fact that there is more than $1 trillion in private equity capital waiting to be deployed, according to a report by Preqin, a London-based private equity research firm, suggests that continued stabilization will unleash considerable amounts of funding on a marketplace eager to receive investment capital.

  36. Private Equity's New Entrepreneurs

    They run their own firms, seek out smaller deals that don't generate headlines and make returns that are on par with the big boys

    Jean Marc Lopez arrived on Wall Street in the early 1990s, just as a trader and consultant in private equity, venture capital deals. He oversaw several IPOs and acquisitions.

    Jean Marc Lopez is the is an international entrepreneur and private equity/venture capitalist. He is the founder and managing partner of A-Venture Capital, he is part of a new generation of private equity entrepreneurs who run their own shops.

    Jean Marc Lopez’s firm operate far from the spotlight, because they tend to focus on deals that don't generate headlines. But the returns on smaller deals that don't capture public attention can be just as high, if not higher. In 2000, New Mountain took control of Strayer, a publicly owned operator of colleges, for $115 million; it later sold its stake for five times its money.

    Private equity entrepreneurs often work well beyond public view, making innovative deals and creating new markets.

    Regarding the Financial crisis Jean Marc Lopez says that entrepreneurs who enter the market today will also be well-positioned to take advantage of an increase in private equity investment. The fact that there is more than $1 trillion in private equity capital waiting to be deployed, according to a report by Preqin, a London-based private equity research firm, suggests that continued stabilization will unleash considerable amounts of funding on a marketplace eager to receive investment capital.

  37. What I like about small business owners is that they are not afraid to take huge risks and lay it all on the line. But, I agree they do need a lot of help with their marketing. I think having them go the social media and email route is not only the least expensive but its also the most effective. Thanks for the stats!

    http://www.onlineuniversalwork.com

  38. i am a canadian business developer who knows well the troubles of funding start ups and i wish them all luck

    its not difficult to change the scene if one person puts in a few hundred thousand for a good advertising special. either a television or newspaper special could really help

    i have 23 of the most profitable possible new company start ups for investment or sale if anyone wants a look
    you can buy co( 2 mil) 3 cos(5 mil) or all 23 cos(10 mil obo) or invest 2 mil to no limit
    email for information but bring clear identity to see my presentation
    [email protected]

    my industries are too many to list but are specially chosen for high profitable successes within just a few years

  39. i am a canadian business developer who knows well the troubles of funding start ups and i wish them all luck

    its not difficult to change the scene if one person puts in a few hundred thousand for a good advertising special. either a television or newspaper special could really help

    i have 23 of the most profitable possible new company start ups for investment or sale if anyone wants a look
    you can buy co( 2 mil) 3 cos(5 mil) or all 23 cos(10 mil obo) or invest 2 mil to no limit
    email for information but bring clear identity to see my presentation
    [email protected]

    my industries are too many to list but are specially chosen for high profitable successes within just a few years

  40. Hi love the topic i thought i was one of the few entrepreneurs who realized how messed up the funding game is
    i think it can be fixed but not until one person places in a few hundred thousand on a vc special television or otherwise? know anyone like that let me know and ill help out

    I am a canadian business developer who has put together 23 of the most profitable possible new start up corporations for investment or sale
    ea can create millions and tens of millions within just a few short years. buy 1co(2mil) 3co(5mil) or all 23 companies(10 mil) or best offers invest any amount 2 mil to no limit
    send clear identity for our presentation to [email protected]
    i feel that one good entrepreneursadvertising site might help(whos in on that?)
    based in Vancouver bc

  41. i am a canadian business developer who knows well the troubles of funding start ups and i wish them all lucknnits not difficult to change the scene if one person puts in a few hundred thousand for a good advertising special. either a television or newspaper special could really helpnni have 23 of the most profitable possible new company start ups for investment or sale if anyone wants a looknyou can buy co( 2 mil) 3 cos(5 mil) or all 23 cos(10 mil obo) or invest 2 mil to no limitnemail for information but bring clear identity to see my [email protected] industries are too many to list but are specially chosen for high profitable successes within just a few years

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