Canadian venture capitalism is stepping out of the shadow of the United States according to a new report from the Business Development Bank of Canada (BDC).
This is good news for entrepreneurs and CEOs who are concerned about the degree to which Canadian talent has traditionally had to head south to attract investment. Concerns about the minor-league status of homegrown companies were relayed to Prime Minister Justin Trudeau recently by Ali Tehrani, CEO of B.C. biotech firm Zymeworks.
“I told the prime minister, ‘I’m tired of being the CFL to the NFL,’” Tehrani said during Business in Vancouver’s radio show on Roundhouse Radio.
If the BDC’s report is any indication, Tehrani and others shouldn’t have to worry about Canada playing second fiddle for much longer. Investment dollars in Canada over the past six years have risen 113%.
U.S. investors and venture capital (VC) firms are looking to put their money in companies that are located close to their clients while still developing highly skilled workforces, said BDC vice-president Jerome Nycz.
Vancouver is gaining international acclaim among venture capitalists as a hub for specialized technological development. The city’s talent and expertise in biotechnology was showcased by the recent Zymeworks’ IPO that raised $85 million.
“Artificial intelligence is another sector where large corporations in the U.S. are seeing Canada as a real home of great international talent,” said Nycz. “I’ve heard a lot of strong opinion, especially in our portfolio companies, that the ambition is to build anchor companies in Vancouver.”
Talent isn’t the only reason VC firms are looking to establish themselves in Vancouver. Nycz says that rising costs in cities that have traditionally been home to VC companies is another contributing factor. The increasing cost of operating in places like Silicon Valley is encouraging investors to establish themselves elsewhere. The future will likely bring a number of small hubs of investors in large cities that will specialize in particular sectors.
Vancouver’s proximity to Silicon Valley, along with it’s specialized and educated work force, makes it a natural place for investors to look.
While Vancouver is becoming increasingly attractive to VC investment, there are concerns about the state of the industry. The lack of large corporate investors is a continuing problem. The percentage of total venture capital in Canada contributed by large corporations is half the proportion worldwide. This relative lack of corporate funding could be contributing to some of the difficulties the industry is seeing in Vancouver, including access to late stage funding.
While investment has been on the rise in Canada, the BDC study found that there is still a difficult investment landscape in the country. The gains Canadian VC firms receive on their investments are smaller than in other countries, and they are slower to sell. The inability to leave an investment quickly, with an acceptable return, means that investors may be encouraged to go elsewhere.
