Our comment: This is the most accurate article on the startup scene in Canada in 2013. As entrepreneurs this accurately summarizes our experience and that of our fellow entrepreneurs in Ottawa.
Key problem: Canadian financial backers are VERY reluctant to make introductions and open up their contacts to entrepreneurs. Meanwhile, in San Francisco and the Silicon Valley, everyone has a habit of introducing everyone to everyone who has even the slightest interest in each other. In three days one of the authors of this blog, Maria Al-Masani made more contacts in the Valley (such as Twitter and Yahoo executives, etc) than in ten years in Ottawa. And, they were very helpful in making further introductions and contacts. Meanwhile, the few people in Ottawa who do introduce people run nothing short of a full blown due diligence before sending out an email.
Why is this a problem? It means an entrepreneur must already have an extensive network of contacts with money, paying clients before they can even start a business. By the time they developed them for an employer, their financial needs have been taken care of for many years, so they don’t have serious problems. Necessity is the mother of invention: you need problems for entrepreneurs to find solutions. Entrepreneurs with fewer problems as a group are less innovative than those that experience them, but lack the contacts and capital to get the next Google out of their head, and into a running business.
The two gentlemen that started Google themselves didn’t have a rich network of contacts without having been actively introduced (their father wasn’t Donald Trump). Same is true for Twitter, DropBox, AirBnb and most Silicon Valley businesses. While young entrepreneurs have the skills, ideas, access to seed capital via government programs to bring ideas to life, they have to move to the United States to find business people to proactively introduce them to their network of contacts so that their business can grow.
Canadian businesses’ reluctance to open up their contacts is why Canadian entrepreneurs are leaving Canada by droves to the Silicon Valley. 350,000 Canadians live in Silicon Valley.
National Post Article:
Why Canada’s tech entrepreneurs prefer American backers
Quentin Casey | 13/07/21 | Last Updated: 13/07/24 11:17 AM ET
More from Quentin Casey
Entrepreneurs say U.S. venture capitalists, unlike many of their Canadian counterparts, are connected, cash heavy and won’t just sit back waiting for the next board meeting.
Carol Leaman recently raised $3.3-million for her Waterloo-based startup, Axonify. The funding round involved two U.S. investors: Harmony Partners, a venture capital firm, and education giant Kaplan.
Ms. Leaman, who sold another company, PostRank, to Google in 2011, had the choice of adding a Canadian investor to the round, but declined.
It was a decision based on experience. “U.S. investors are much more aggressive in actively helping you accelerate your growth — not just sitting back and waiting for a quarterly board meeting,” she said in a recent interview. “My U.S. VCs are actively working for me and thinking about me every day.”
Canadian venture capitalists are improving, Ms. Leaman said. But she added her U.S. investors continue to push further, frequently introducing her to potential contacts and customers.
“They are constantly thinking about their portfolio companies and how they can tangibly help. I did not have that with Canadian VCs,” she said. “If you can go to the U.S. and get money, my recommendation is do it.”
Her experience raises a key question for Canadian entrepreneurs: Is U.S. venture capital more likely to help your company succeed?
A recent funding report from Toronto-based MaRS, an innovation centre, certainly leaves that impression. The report, titled Borderless Investments, highlights the success rate of Canadian companies backed by U.S. venture capitalists.
In 2012, 23 venture-backed Canadian tech companies were acquired. Nearly 60% of them had received U.S. venture capital. “This reinforces the need for Canadian companies to look to the U.S. for late-stage financing,” report author Neha Khera said.
For Code Cubitt, seeking U.S. funding makes sense for one simple reason: “The reality is that there are 20-times more venture capital dollars spent there than here. On a per capita basis, there’s more than twice as much,” he said.
Mr. Cubitt spent more than 10 years in Silicon Valley working for investment firms such as Ciena Ventures and Motorola Ventures. Now, he is managing director of Mistral Venture Partners, a $35-million venture fund based in Ottawa. Mistral Venture, the first fund to set up shop in Ottawa in 10 years, has generated front-page news. Yet it’s tiny compared with the slew of multi-million- and multi-billion-dollar funds in the United States.
“There’s just so much more money there,” Mr. Cubitt said. ”Why not take advantage of it?”
Chris Arsenault, managing partner of Montreal-based iNovia Capital, argues that U.S. cash is not a prerequisite for success. He points to Radian6, the New Brunswick social media monitoring company purchased by Salesforce.com for $326-million. “You need to have connected investors, wherever those investors are,” he said.
“You go where the key relationships are.”
David Quail’s newest venture, Zenlike.me, is straddling the Canada-U.S. border, reaping the benefits of both countries. The Canadian entrepreneur has lived in Silicon Valley for three years. There is “no better place in the world” for accessing capital and marketing and business development expertise, he said. “The downside is it’s a pretty terrible place to recruit and build a technology team.”
The average Silicon Valley software developer earns as much as $180,000 a year and are quick to jump to another company, or start their own. Mr. Quail based his engineering team in Edmonton, where developers earn half of what Silicon Valley counterparts do. “And they’re more loyal,” he said.
However, Mr. Quail plans to remain in the Valley, because so much money “flows” between investors and startups. “And it tends to flow within your close circle,” he said.
“It’s the old adage: business is largely who you know. It’s incestuous… but you have to play in that game.”