Much of the business headlines have been heaping praise on Canada over the past several years – a solid economy, plenty of resources, and a debt-to-GDP ratio that actually seems within the manageable realm. Even our own Prime Minister attempts to use us as an example for the rest of the world, that's something many would have considered downright un-Canadian just a few years ago.
While we are certainly in a better financial picture than most, there is definitely a blemish on the Canadian economy and it's becoming more and more visible as it goes untreated. A recent article in the Financial Post commented on Canada's need to improve access to both VC and public funds. It's worth reading and there's a lot to like about much of the assertions made in the article.
It goes without saying that Canada's economy is powered by many things but one of the main drivers is resource companies. Obviously, the need to diversify is there and technology, research and a variety of different sectors all require a combination of VC and public funds to move them forward.
The real issue still isn't being addressed, however, and this is something the article makes quite clear.
“Within the VC portfolio, access to seed capital is most restricted: of the $1.51 billion in VC invested in 2011, two thirds—$1.08 billion—went to later-stage companies. Yet without early-stage venture financing, many Canadian companies fail to bridge the gap from local micro-firms to mature firms within our national economy.”
Since much of the VC environment in Canada is spent playing the waiting game – waiting to see where the public funds are willing to place their bets – most of the equity up for grabs is landing with the more established ventures that boast plenty of government backing already. We understand why the government does what it does, but there is certainly an unintended side-effect at play here – the current approach institutionalizes the flow of capital away from early stage investing.
The truth is that VC funding is down overall and the problem is most exacerbated at the early stage level. Analyzing and interpreting risk is one of the cornerstones of success in business but risks must be made – even if it's outside of your traditional comfort zone.
Zynik Capital is a firm believer in the importance of angel and early-stage investing. Oftentimes, the money is what gets the wheels moving, but having experienced individuals come on board and assist an early stage company is what can make the long-term, tangible difference between a flash-in-the-pan idea and a winning venture.
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