Canada’s VCs Get a Lifeline

Canada Venture Capital Action Plan | BCBusiness
Truth be told, Canada’s technology sector could use the $400 million in government funds planned for the Venture Capital Action Plan.

Stop kicking around the new federal venture-capital fund. VCs and tech companies desperately need the money to stay alive—but they too have to change.

When Prime Minister Stephen Harper announced a new $400-million fund to support Canada’s venture-capital industry two weeks ago, the usual Bay Street pundits decried the idea as, among other things, government interference in the marketplace.

The fund, called the Venture Capital Action Plan, will divide its money among a clutch of venture capital firms and groups in an effort to boost Canada’s pathetic venture-capital scene and jump start the struggling technology industry. Reaction among the financial aristocracy was vitriolic: what was a know-nothing government doing by trying to pick investments?

The corollary to that argument is, of course, that the people with the money need to be doing it. But their track record isn’t much better. In fact, it’s almost non-existent. The only thing timid investors here throw their dollars at are energy companies and last week’s winners.

The reality is that, outside Toronto’s rarefied atmosphere—and even inside it—venture capital is shrinking in Canada while it’s booming in other areas such as the U.S., Israel and Asia. As a result, our technology industry is also withering on the vine.

Of course, viable technology companies do sprout up in Canada, but they invariably sell out to American firms or cross the border so they can access real venture-capital funds that will provide more than a few drops of funding and introduce them to a business world that is barely dreamed of in Canada.

Simply put: the venture-capital industry and the technology industry that depends on it need the money.  

We’re a startup nation. Our technology companies are, for the most part, young and small, and need development funding. They don’t get it from traditional investors so have to go to the venture capitalists.

But our VCs are also small (and small thinking, usually). If they do invest in a company that has some potential, they push them to sell out early so they can get their money back quickly.

So what does all of that mean? This country’s economy is becoming increasingly dependent on oil, gas and other natural resources. Technology? We’ll import that.

So what’s changed in 150 years?