Posts Tagged ‘Canada’

Innovative and high-growth firms need access to capital to ensure success.   In addition to the typical start-up sources of capital – love money, crowdsourcing, angels and the maze of public sector  support,  such firms – early – and late-stages, need access to venture capital (VC) funds.  In Canada, as in most other OECD countries, equity provided in the form of venture capital decreased between 2007 and 2009 and rose slightly in 2010 (OECD 2012). Canada’s venture capital industry has been challenged on a number of fronts in recent years, including persistent poor returns that have led to low fundraising and have limited the amount of capital available to fuel the growth off Canadian start-up businesses (Canada’s Economic Action Plan). In the technology sector, venture capital declined steadily following the tech bubble burst of the early 2000, and returns on investments have been dismal since.   Consequently many high-tech firms are often forced to go south of the border to access US venture capital, leading to a lost of Canadian tech talent to places like Silicon Valley.

Canadian VC investment activity remained at a steady state in 2012 compared to 2011: $1.47 billion in 2012 vs. $1.51 billion in 2011, in about 458 firms each year. Total deal sizes under $1 million represented nearly half of all deals completed in 2012, a continuation of a trend that has become more pronounced in recent years. Software and Internet-focused firms captured about half of VC investments in 2012 (Industry Canada).  Some predicts that 2013 will see  the VC landscape in Canada shifting.  Of note, the federal government’s announced last January  the Venture Capital Action plan, a comprehensive strategy for deploying the $400 Million in new capital over the next 7 to 10 years, which is expected to attract close to $1 billion in new private sector investments in funds of funds (Canada’s Economic Action Plan).

Questions to ponder:

1) What are the overall goals and mechanisms of the Government of Canada’s Venture Capital Action Plan announced in its Economic Action Plan 2012 ?

2) What are the key VC funds in Canada?

3) What are the key VC funds in the US?

4) How would you characterize the Canadian VC funds versus the US VC funds?

5) What are some of the trends happening on the Canadian VC scene?

References:

Canada’s Economic Action Plan – Venture Capital Action Plan http://actionplan.gc.ca/en/initiative/venture-capital-action-plan-0

Industry Canada, Venture Capital Monitor www.ic.gc.ca/vcmonitor

OECD 2012, ‘Canada’, in Financing SMEs and Entrepreneurs 2012: An OECD Scoreboard, OECD Publishing. http:://dx.doi.org/10.1787/9789264166769-6-en

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Scott Shane is the 2009 Winner of the Global Award for Entrepreneurship Research.  This essay (in Small Business Economics 2009, 33(2):141-149) is the Prize Lecture he gave upon receipt of the Award in May 2009 in Stockholm, Sweden.   The essay draws on his book: Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors and Policy Makers Live By. Yale University Press, 2008.

In this paper, Shane argues that policy makers should avoid subsidizing the typical start-ups and instead focus on high-growth firms.  His rationale is that high-growth firms, sometimes called ‘gazelles’, are the source of economic vitality and job creation.   Using various sources of data, he demonstrates that  typical start-ups are headed by people not necessarily motivated by growth, in industries in which most start-ups fail, and not necessarily the best entrepreneurs, hence not generating innovation, jobs and wealth as policy makers would like to believe. He argues that this is not just a U.S. phenomenon since studies conducted elsewhere show similar results.

This is a rather strong argument given that most government officials do not want to ‘pick winners’ to support.  Yet, Shane argues that start-ups with a high probability of generating jobs and enhancing economic growth can be identified.

In Canada, several, such as Wells and Hungerford (Policy Options, September 2011), are advocating that high-growth entrepreneurship is key to Canada’s future economic success.

Questions (to my entrepreneurship students but open to all to comment):

1) What are Shane’s key arguments against policies to support more people to become entrepreneurs?

2) What is your opinion of this paper: do you agree? disagree? why?

3) What is the situation in Canada? (Hint: google the Policy Options paper I mentioned above as one source of information)

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