Canada Sees Major Jump In Startup Investment

By: Talha Bhatti  |   January 3rd, 2013   |   Business, News, O Canada

The global crash of financial markets caused Canadian startup financiers to stop investing in new ventures. In 2008 Canada ended up having the lowest level of venture-capital investment for the past ten years in more than a decade, a trend that continued for the next two years. All that seems to have changed in 2012 with a total of $1.5-billion of VC funding being pumped into startup firms located in Canada.

 

This is still quite some way from the $2.1-billion that Canadian VC firms injected into startups in 2007 but the rate of growth set in 2012 is likely to continue in 2013.

 

Managing Director at OMERS Ventures, Derek Smyth, states that, “I’ve been in venture for nine years and by far 2012 has been the most active year at every level. [There have been] companies being funded, funds closing and actively investing and continued government support.”

 

Canada’s Venture Capital and Private Equity Association has release number that claim venture-capital firms in Canada by October raised $1.1-billion in funds. The association will be releasing the final year end numbers for 2012 soon. However, the CVCA says that there has already been $1.5-billion in fund raising which is making 2012 the best year for new fun creation in five years.

 

What is also interesting about 2012 is that many big U.S. based VC companies joined in the fund raising for some very high-profile deals in Canada. Deals include a US$17.3-million raise for Toronto-based Wattpad.com and US$30-million for Montreal-based LightSpeed Retail Inc. Canopy Labs and ShopLocket also got money from Valar Ventures.

 

Smyth adds that, “There’s always been what I call ‘opportunistic’ interest but I’ve never seen as much of what I’ll call ‘programmatic’ interest where U.S. VCs are coming up here on a regular basis to talk to us and other VCs about the deals they’re looking at and searching for proactive opportunities.”

 

The recent spike in VC funding from the US to Canada has been attributed to a change of tax laws in 2010. The updated legislation almost entirely removed withholding tax and administrative red tape for foreign investors in Canadian firms.

 

Mark MacLeod, a partner at Real Ventures, claims that, “The border is absolutely non-existent in my books.” He goes on to say that, “It’s taken awhile for U.S. investors to realize that and in fact I still have conversations with folks doing their first deal up here, just telling them, ‘You know what, it’s just like any domestic investment. But more and more investors are recognizing that first, there are just great companies up here and second, there’s a new wave of credible local investors up here.”

 

Canadian VC are also flexing their muscle with firms like iNovia, Celtic House Venture Partners and Rho Canada creating funds that are in the $100-million range. Smaller Canadian funds like Mantella Venture Partners and Golden Venture Partners are also active and have partnered with American funds to invest in local talent.

 

Another reason for the rapid rise in VC activity in Canada is the Government’s support of the sector. Even the though the government is still debating how to spread out the $400-million of federal government support through private investment in early-stage companies the Business Development Bank of Canada’s Venture Capital IT Fund has developed a $150-million fund that has given out $50-million to date. With other factor like business accelerators also in the market it seems that Canada is on track to another record breaking year for start ups and VC firms.

Source: Financial Post