No, I think this is just the nature of Canadian investors - they are much more risk-adverse and don't seem to have the stomach for the "swing for the fences" angel investment that US investors have. It's cultural.
Really? Investing in Canada must be really bad then because moving to the US is not easy. (At least not if you aren't sponsored by BigCo whose large legal department will take care of the insane paperwork for you)
It speaks more to canada's lack of entrepreneurial spirit than anything else. There's a reason good canadian companies go to the U.S. to get funding...
Originally from Calgary and I concur with the poster above. Canadians tend to think small. For venture the culture has been so burned by pump and dump penny stocks that there is no patient capital. Canada needs an enormous influx of venture capital. The problem is, is that the crown corporations who can make those bets are limited to investing in Canadian funds. If they could invest 10% into a US fund and the US fund agreed to invest 10% of the portfolio into Canada it could really open up the market.
That's great, a few months ago I saw a US VC overview of "investing in Canada"...it was scary. A common route is to use a whole whack of sibling companies (like 3 or 4) to transfer the money, it was a mess.
Their conclusion: just move to the US, it's easier.
> Investors in Canada just don't have that kind of money to play with.
The ecosystem [1] that provides dollars to high-risk investments (like tech startups) just doesn't exist on the same scale in Canada. The only players with that kind of money are the federal and provincial governments, which are by nature very conservative.
[1] For example, one source of funding is large pensions and endowments, who take a tiny percentage of their overall portfolio and put it into "high-risk" investments. The funds are so large that the tiny percentage amounts to millions and millions of dollars.
The money came from Desjardins etc. because of the 'strategic' and 'nationalist' aspect of the investment.
No VC - even American one's were going to invest in that kind of boondoggle up front at those valuations.
So you're right when you say 'there isn't enough money' - at the same time, that's not the problem specifically here, and, frankly, good companies will get the money.
Sure the Canadian banks are more stable but they are EXTREMELY conservative when it comes to lending out money. That's why the USA has a robust venture capital milieu while Canada does not.
In fact a Canadian bank would rather loan money to an American business to buy out a Canadian business than to lend the same Canadian business to expand.
yes, there are much less investment funds and also less banks in Canada, compared to the US. This is going to be introduced as an viable and trusted source of capital for new & growing businesses.
With the CAD being low there might be a window where a lot more American capital invests here. Until the price of oil climbs again.
In general it seems like VC-funded companies that go through acquisition here get a far weaker deal than similar companies in the US. And the employees a lesser share of the pie. Maybe that's changing now, but unless the capital is there to invest, I can't see how.
I've seen this article repeated in the NatPo[0], and more-or-less copied in the HuffPo[1], but no where else. I suspect this is mostly fearmongering. The US market is so much bigger than Canada's that most investment portfolio recommendations for Canadians include double-digit proportions of US equities and bonds. And if they are weighted towards energy, I can see why they'd shift south of the border.
Onerous hurdles that have kept foreign venture capital funds from investing in Canada have been lifted, providing access to billions of dollars that were out of reach for promising startups desperate for cash to fund their development.
Thursday's federal budget struck down a rule that said foreign investors had to pay a 25-per-cent tax on any capital gains made when a Canadian investment was sold, unless they filled out paperwork to receive an exemption. Each individual investor in a fund – there could be thousands in each – had to personally fill out the forms, and then wait months for a reply. Once they received an exemption, they had to file a return with Canadian tax authorities informing them of the exception.
“All of the complications made investors perceive Canada as not being conducive to capital,” said John Ruffolo, the leader of Deloitte's technology practice in Canada.
“U.S. venture capitalists just said ‘Forget it, I'll give my money to Israel or India where it's actually wanted.'“ Deloitte did a study in 2007 and found American investors considered Canada the worst place to invest in the developed world “by an overwhelming and massive margin” because of the rules. While the changes won't automatically lead to a flood of investment, any help is welcome in an industry that has seen sharp declines.
“There aren't 20 deals just sitting there waiting to be had,” Mr. Ruffolo said. “But what happens now is the large funds in Boston and Silicon Valley will once again take a look at Canada.”
The Canadian Venture Capital Association (CVCA) said 2009 was the sector's worst year in more than a decade, as investments slipped by 27 per cent to $1-billion.
The amount invested per firm was 40-per-cent lower than obtained by U.S. counterparts, the widest gap in Canada-U.S financings since 2005.
“The barriers we had in place left Canadian companies undercapitalized,” said CVCA president Gregory Smith, who has been lobbying for the change for seven years. “This hasn't just been an issue about an economic crisis. Other countries have been more aggressive in supporting the ecosystems where venture capitalists operate.”
Carol Leaman has seen the effects firsthand. As chief executive officer of PostRank, a Waterloo, Ont.-based social media analytics company, she had a slew of U.S. suitors “kicking the tires” when she sought financing in 2008. Their message was the same – we're interested, but it's too complicated to bother.
“I can't tell you the number of times we heard that they'd like to invest but the paperwork was just too much,” she said. “There were just too many hoops, it made it virtually impossible. So you rely on local VCs, and there aren't that many.”
While many say the changes were needed, Canadian venture capitalist Mark McQueen cautioned that it's just one piece of a larger solution to the industry's problems. Pension funds have stepped away from early-stage financing, and governments haven't stepped in to fund companies at their earliest stages of development.
He said a more meaningful move would be for the government to set aside $300-million and create 10 funds, to become self-funding as investments become commercialized.
“The industry needs to be restocked with capital,” said Mr. McQueen, CEO of Wellington Financial. “Show me one U.S.-funded deal [in Canada] that did not have Canadians in earlier. Without money early, you won't bring in the bigger investors.”
Exactly. Not sure they understand how things work in Canada at all. If anything, average investors in Canada can more easily access investable assets compared to American counterparts. For instance, there is no pattern day trading equivalent.
Canada is receiving so much money for investment because it is perceived as the most stable country in the Americas.
But Canada just doesn't have enough assets to soak all that money up. So that money chases the few assets such as residential property stock.
Canada could legally allow all this money to be invested in startups or companies that need funding instead of passive assets. That way, the same money would be funneled to actual companies and workers, while at the same time, providing assets to all this foreign money.
Yeah, that's my point. OP criticized the US policy and presented the Canadian system as an alternative when it isn't.
In fact, the only benefit here seems to be for founders, but given the comments about the lack of angel/VC money in Canada, fulfilling the requirements looks to be difficult.
Like many other things affecting western countries though, it's worse in Canada since we have lower investment rates, spend less on R&D, have an ultra-risk averse culture, extremely high costs, etc...
That's because all of our non-resource companies are either:
1. American / international subsidiaries.
2. Mid-sized CCPCs.
3. Owned by private equity firms.
I agree that Canadians do not allocate their retirement savings correctly and that our stock market is not a reflection of our economy, but our government has common sense measures to support a variety of industries.
Canadians are simply risk-adverse, or are more comfortable with oil and gas or basic financial services.
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