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The Immediate Need to Fix Canada's Venture Capital Model

Yesterday the Board of Trade hosted an event they called, “The Immediate Need to Fix Canada’s Venture Capital Model.   John Ruffolo, SVP OMERS Strategic Investments and CEO of OMERS Ventures presented a keynote address with his thoughts on the current venture capital landscape in Canada.  This is a topic that John is quite passionate about and shared some interesting points that we made note of:

  • large anchor companies are vanishing (ex. Nortel), through acquisition or bankruptcy
  • mid-size companies are not stepping in to take their place (ex. RIM)
  • smaller companies are being starved as venture capital hovers at levels not witnessed since the mid 1990’s
  • our R&D spending, at 1% of GDP, is declining and leaves us ranked 14th in the OECD
  • a recent Conference Board of Canada report gave us a “D” on innovation, and ranked us 14th out of 17 peer countries

Where is the Money for startups?

  • Financial Institutions
  • Pension Funds
  • Corporate
  • Foreign Investors
  • Individuals
  • Governments

John identified that part of the problem is that startups need to take a “cradle to grave” approach when looking at their company, in the past many companies relied solely upon online advertising for revenue, the last recession showed this is a failure waiting to happen.  Instead John suggest that Founders need to look at the ecosystem of funding, from the first dollar spent in research, to angel investment and all the way to raising their second round of funding.

Should there be an angel tax credit?

Any type of incentive that will help drive investment dollars into the startup ecosystem can only help.  A few additional points that John suggested include:

  • largely modelled off the BC model, where investor put their money into a qualified investment and then get a rebate back
  • Ontario liberal government proposed it, but is still pending
  • this is intended for corporations to go into corporate investment

He was then joined on stage by Chris O’Neill, Managing Director, Google Canada.  As we all know Google is one largest technology-based companies on the planet, but does it do anything for startups?  No, they do acquire startups and have picked up a few Canadians ones over the last five years which is great, but that is after the startup has done the leg work to start, grow their business and generate revenue.  As Google launches their own new products, they never make it to Canada until a year or two after, so Canadian developers never get access to see how they can develop and integrate into Google’s technology.

What is a startup?

  • some where they are just trying to pay the bills
  • creating a feature that will be come part of something else
  • massive disrupters that change an industry

How does an entrepreneur handle the lack of capital?

  • need more risk – Canadians need to start to take more risks and take ideas into launching new companies
  • more people from these successful companies need to start something new (Nortel, RIM)
  • Ideas are cheap, innovation and execution are what matters”

Collectively they both agreed on the strength that Canada offers with:

  • education system
  • cultural diversity
  • world class research
  • next to the biggest economy in the world

The event was attended by mainly Fortune 1000 professionals, people who are working for companies and not typically the ones in the trenches launching these new startups, so some good information was shared, but probably not the ideal audience who can do anything with the information.

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