in Ontario

On Sunday, Jevon announced that Brightpark, one of Canada?s most famous technology VC?s, has begun doing contract web work.

This is the second VC-incubator in Canada, in the last year, that has moved to doing contract web development. Not long ago, STN Labs (located in my company?s hometown of Guelph) made a similar move. STN Labs once touted itself as being a solution to the ?VC Problem in Canada? ? they were hybrid VC 2.0 / Angels that came in early and had real operational experience. Well it didn?t work: STN unofficially stopped investing and is now primarily doing contract web-work.

Jevon mentioned Ventures West and Celtic House in his blog post ? hinting at how Brightspark?s announcement fits into the bigger picture of VCs in Canada.

There are big differences between Brightspark and STN versus Ventures West and Celtic house. The latter two were both traditional, large scale VC?s, while Brightspark and STN were both recently propped up for getting in at early stages, being hands-on, and also doing incubating.

Over the last two years, I?ve heard many fellow entrepreneurs talk about how the the old style of VC investing is dead. Conversationally, the Brightspark and STN models were, last year, seen as the solution for the problem.

Turns out that neither was right. All VCs, big, small, traditional, or innovative: all are having trouble.

Focusing again on the bigger picture, it?s interesting to look at what is similar between all four VC?s mentioned here and to look at the VC?s in Canada that are still actively investing and think about what?s special about them.

I?ve met Mark and Tony from Brightspark and consider them friends ? I know them both as brilliant people, the kind of guys with whom entrepreneurs would be honoured to work. I don?t see this as a sad move for Brightspark, both Tony and Mark are walking success stories who get to work on projects that are driven by passion. They?re still doing that.

In the general sense, it?s pretty simple to see what?s going on in the big picture (even ignoring this recent announcement from Brighspark):

We don?t have a surplus of interesting businesses with numbers that will make VC?s happy.

At the same time, Canadian VCs talk about how they invest with the hopes that only 1 out of 10 businesses that they fund will be slam dunks, while at the same time they are too risk averse to invest in businesses that have only 1 in 10 chances of succeeding. No business can filter through this impossible sieve: returns of the size demanded by large VCs require small startups with high risk. Many of the VCs I meet in Canada think that they can get around this impossible sieve problem by being smarter investors: every VC I know says that they will not have 1 in 10 success rates ? rather, they aim for success 4 or 6 times better than this rule of thumb. Looking at their past history, however, they all admit to success rates much worse than the same rule of thumb.

Of course this has a cyclical effect. With funding scarce, working as an employee at startups in Canada, pretty much across the board, is not a great way to get a high salary. And although salary is only part of what makes a job great, it is ? realistically ? an important part. So we get a brain drain. And as funding is more scarce, and success stories even more scarce, less technology grads are willing to take big risks and pitch big adventures to investors. It?s just too scary. Less funding means entrepreneurs are being more careful, taking smaller risks, and growing more slowly. Startups now build leaner teams, hire less experienced executive teams, and release products every two years instead of twice a year.

All these facts lower the possibility of grand slams.

American VCs aren?t doing something to make themselves magically better ? it seems to me that it?s just that many of them control much larger sums of money, and from a distance it?s easiest to see what only the most successful ones are doing. Larger pools of money allow the larger VCs to keep their eyes out farther in the future, holding out while this sub-economy recovers.

Advice to Canadian entrepreneurs: look towards the growth of Angel groups, raise as much money as you can to weather the storm, tighten your vision, look towards less standard Web 2.0 business models, and be patient.

Advice to Canadian VCs: don?t worry I am not presumptuous enough to think I have any idea on how to advise Canadian VCs.

  • Brightspark is Lamo

    Firstly, how about not kissing ass to Mark and Tony. I used to work as a developer for one of their companies, and, rest assured…they are far from brilliant. They basically forced the company into bankruptcy. They have a terrible reputation for not working well with people and forcing their ideas on to others. They have been telling everyone that they did BS3 because they wanted to…bull…I know many LPs who have clearly said they would never work with them again. They couldn’t raise another fund. Moreover, I heard from a buddy in the valley who works at a large VC fund there that they will never work with Mark again. Long story short….there is an issue of getting good deals, and then there is an issue of just plain old bad VCs who don’t know what they are doing. Mark and Tony (and Sophie) fall largely on that list.

    Good for them to be doing service work…time for them to eat crow.

  • Brightspark is Lamo

    Firstly, how about not kissing ass to Mark and Tony. I used to work as a developer for one of their companies, and, rest assured…they are far from brilliant. They basically forced the company into bankruptcy. They have a terrible reputation for not working well with people and forcing their ideas on to others. They have been telling everyone that they did BS3 because they wanted to…bull…I know many LPs who have clearly said they would never work with them again. They couldn't raise another fund. Moreover, I heard from a buddy in the valley who works at a large VC fund there that they will never work with Mark again. Long story short….there is an issue of getting good deals, and then there is an issue of just plain old bad VCs who don't know what they are doing. Mark and Tony (and Sophie) fall largely on that list.

    Good for them to be doing service work…time for them to eat crow.

  • http://learnhub.com/users/JohnPhilipGreen John Philip Green

    Good article Ali.

    Let’s all work our best (not that I need to tell you!) to really knock a few out the park. I think the way out of this mess is to have a bunch of big, shinning successes. When is Well.ca going to IPO???

  • http://learnhub.com/users/JohnPhilipGreen John Philip Green

    Good article Ali.

    Let's all work our best (not that I need to tell you!) to really knock a few out the park. I think the way out of this mess is to have a bunch of big, shinning successes. When is Well.ca going to IPO???

  • Bryson

    I don’t want to make a bigger issue about Brightspark than it is already or try to over analyze the situation. Like many VCs in Canada and the USA they failed to deliver returns to their LPs and cannot raise another fund. It happens all the time in the USA but people don’t blame the lack of opportunities; hard when other VCs are thriving. That said, the USA and Canadian markets are very different and the government needs to wake up and play a role. The US government helped drive the VC sector with SBIR and STTR programs. The Canadian government struggles with the idea of giving tax breaks to start up companies. If they continue down their current path, they won’t have to worry as there won’t be any startups left. Also, we need to create a mechanism to attract foreign capital to invest in Canadian private companies (tax breaks, real R&D grants, etc.).

    http://localtechwire.com/business/local_tech_wire/opinion/story/3061261/

    Without such an ecosystem in place, like USA and Israel, entrepreneurs will not take a chance of starting a new company when the odds are clearly stacked against them. As a first step, we need to attract some talented Canadian expats that are successful entrepreneurs and venture capitalists. There are lots of Canucks down in the USA. Canada has lots of talented people but we can’t start at ground zero if we hope to succeed. Recruit people that have the background to train the next generation. Most Canadian entrepreneurs and venture firms are doing the job for the first time……the blind leading the blind.

  • Bryson

    I don't want to make a bigger issue about Brightspark than it is already or try to over analyze the situation. Like many VCs in Canada and the USA they failed to deliver returns to their LPs and cannot raise another fund. It happens all the time in the USA but people don't blame the lack of opportunities; hard when other VCs are thriving. That said, the USA and Canadian markets are very different and the government needs to wake up and play a role. The US government helped drive the VC sector with SBIR and STTR programs. The Canadian government struggles with the idea of giving tax breaks to start up companies. If they continue down their current path, they won't have to worry as there won't be any startups left. Also, we need to create a mechanism to attract foreign capital to invest in Canadian private companies (tax breaks, real R&D grants, etc.).

    http://localtechwire.com/business/local_tech_wi

    Without such an ecosystem in place, like USA and Israel, entrepreneurs will not take a chance of starting a new company when the odds are clearly stacked against them. As a first step, we need to attract some talented Canadian expats that are successful entrepreneurs and venture capitalists. There are lots of Canucks down in the USA. Canada has lots of talented people but we can't start at ground zero if we hope to succeed. Recruit people that have the background to train the next generation. Most Canadian entrepreneurs and venture firms are doing the job for the first time……the blind leading the blind.

  • http://civiside.com Ken

    I was part of a very ambitious, world changing startup last year that simply could not get any funding from the “Early Stage” investors including Brightspark, Garage, and Montreal Startups. It was great that they would take a meeting, but I really feel like they are not nearly aggressive enough in their approach to working with very green teams with big ideas. If VCs want big successes they need to increase their appetite for risk…including team risk.

    Luckily for me I had another project in the back of my mind that I wanted to do, civiside.com, which allowed me to continue innovating without skipping a beat. However, the fact that we couldn’t find any investors for a big idea really forced us to move onto a smaller idea that was achievable with less resources, therefore once again essentially making us unfundable by VC and most Angel standards.

    So, in my view, if other startups essentially go through what we went through with our big idea, and settle for smaller ideas that can be self funded, the VCs are the author of their own demise. The problem is not that there are no interesting businesses, it is that there are no gutsy VCs.

    As a sidenote, you can still make lemonade out of lemons. Our startup now would probably never have happened had we been funded earlier, and ultimately I will feel far prouder of what we have accomplished in serving Canada’s soldiers than probably anything else I will do in my life, so overall I am pretty happy with how things have turned out.

  • http://civiside.com Ken

    I was part of a very ambitious, world changing startup last year that simply could not get any funding from the “Early Stage” investors including Brightspark, Garage, and Montreal Startups. It was great that they would take a meeting, but I really feel like they are not nearly aggressive enough in their approach to working with very green teams with big ideas. If VCs want big successes they need to increase their appetite for risk…including team risk.

    Luckily for me I had another project in the back of my mind that I wanted to do, civiside.com, which allowed me to continue innovating without skipping a beat. However, the fact that we couldn't find any investors for a big idea really forced us to move onto a smaller idea that was achievable with less resources, therefore once again essentially making us unfundable by VC and most Angel standards.

    So, in my view, if other startups essentially go through what we went through with our big idea, and settle for smaller ideas that can be self funded, the VCs are the author of their own demise. The problem is not that there are no interesting businesses, it is that there are no gutsy VCs.

    As a sidenote, you can still make lemonade out of lemons. Our startup now would probably never have happened had we been funded earlier, and ultimately I will feel far prouder of what we have accomplished in serving Canada's soldiers than probably anything else I will do in my life, so overall I am pretty happy with how things have turned out.

  • Thusenth

    Canada has a few unique challenges. We can’t expect to be as efficient/successful as the U.S. (in terms of VC success – lets not talk about their Finance skills as a whole), when we’re geographically bigger than all of the U.S. but contain a population equivalent to one state – California. It shows as VCs in Canada averaged a much lower return on their investment this past decade in comparison to the U.S.

    What Canada is lacking are the big inspirational role models – the Bill Gates, Paul Allens, Steve Jobs, Larry Pages, Mark Cubans, Peter Thiel, Mark Andreesens etc. These guys have had so much media coverage and have inspired so many new entrepreneurs – they have become stars of capitalism. Some of them have had multiple successes and continue to reinvest in new entrepreneurs as VCs or Angels.

    And I think that’s where Canada is different. Our media coverage seems to highlight more ‘old-money’ and their movements- Thomsons, Westons, Rogers etc. We haven’t celebrated the successes of our technology companies in the same degree as the U.S. Ask the average Canadian if they know who Mike Lazaridis is – I even wonder how familiar Silicon Valley is with the name Mike Lazaridis.

    That leads me to my next point – our biggest successes don’t reinvest enough in new local entrepreneurs. I feel as if we need more of a presence from our few success stories – this lack of presence could be because a) the media doesn’t do enough to highlight their success or b) they aren’t interested in the Canadian start-up space.

    I feel as there’s something fundamentally flawed in our startup system – and part of it could be that our government may be playing too much of a role in supporting the technology start-up space. I think they may be inadvertently leaving little room for VCs and Angels to come in early. I say critical because the difference in VC returns in Canada and the U.S. are staggering.

  • Thusenth

    Canada has a few unique challenges. We can't expect to be as efficient/successful as the U.S. (in terms of VC success – lets not talk about their Finance skills as a whole), when we're geographically bigger than all of the US but contain a population equivalent to one state – California. It shows as VCs in Canada averaged a much lower return on their investment.

    What Canada is lacking are the big inspirational role models – the Bill Gates, Paul Allens, Steve Jobs, Larry Pages, Mark Cubans, Peter Thiel, Mark Andreesens etc. These guys have had so much media coverage and have inspired so many new entrepreneurs – they have become stars of capitalism. Some of them have had multiple successes and continue to reinvest in new entrepreneurs as VCs or Angels.

    And I think that's where Canada is different. Our media coverage seems to highlight more 'old-money' and their movements- Thomsons, Westons, Rogers etc. We haven't celebrated the successes of our technology companies in the same degree as the U.S. Ask the average Canadian if they know Mike Lazaridis is – I even wonder how familiar Silicon Valley is with the name Mike Lazaridis.

    That leads me to my next point – our biggest successes don't reinvest enough in new local entrepreneurs. I feel as if we need more of a presence from our few success stories – this lack of presence could be because a) the media doesn't do enough to highlight their success or b) they aren't interested in the Canadian start-up space.

    I feel as there's something fundamentally flawed in our startup system – and part of it could be that our government may be playing too much of a role in supporting the technology start-up space. I think they may be inadvertently leaving little room for VCs and Angels to come in early. I say critical because the difference in VC returns in Canada and the U.S. are staggering.