OUR INDUSTRY IS ALIVE AND KICKIN’ – So lead, follow or get out of the way!

By Chris Arsenault, Managing Partner & COO at iNovia Capital

Within 3 days I probably saw more Tweets and Blogs about the Canadian Venture Capital Ecosystem and Canadian Entrepreneurship than I’ve seen in any given month! Rants, Raves, Criticism and Support, some comments were without any dept while others provided insight. Over the last few weeks, we started hearing about the different provincial government initiatives to support, as investors, the venture capital industry, thus addressing in part the lack of equity financing for existing and new promising technology companies across Canada. Following the CVCA publication earlier this year of a Comprehensive Study on The Impact of Venture Capital in Canada on Economy, Jobs and Innovation (link), many provincial governments jumped on the bag wagon and were announcing fund commitments, new fund creations and/or new budget allocations to VC in order to show their support and help in addressing this crying need for more venture capital funding for Canadian businesses.

Even though we still haven’t resolved the fundamental issue of having private capital flow to entrepreneurs with high growth businesses via more LP commitments towards privately managed venture capital funds, I was pleased to read about the initiatives, the interest and comments from the various players of our ecosystem. The level of comments I received (online and directly via email) from my recent post about the indirect benefits of the recent Quebec government commitments towards venture capital (first posted on Montreal Tech Watch) $5 billion to end up in the hands of Canadian entrepreneurs, nothing less! told me one thing: Yes, people care, people want change, people are showing leadership, support and interest. I’m not saying that everybody agreed with what they understood was going on and how the challenges are being addressed, many had their own views on the Canadian funding issues and had very different opinions, and that’s a good thing, I respect that, as long as those who are voicing their opinions can show leadership by causing action and are participating in the debate by building our industry, not purposely demolishing it.

I suggest you checkout the following blogs for more views and angles, some are more positive than others, yet they all offer additional insight, such as Suzanne Dingwall: Ont. Gov’t As A VC: In with a Whimper, Not a Bang; Mark McQueen’s OVCF dips toe in Ontario waters with “commitment” to Georgian Partners; and entrepreneur start-up CFO Mark MacLeod’S Unfair Advantage only to name a few.

The article from The Canadian Press, and interview with Edmee Metivier, the Business Development Bank  executive vice president of financing, gave a glimpsed of the importance of the continued support needed for our Canadian technology ecosystem and the role some government agencies (such as the BDC) play ‘Lost generation’ of technology threatens Canada: official; The techvibe Canada’s Venture Capital industry is bad? blog posted comments and perspective from Brian Sharwood. Which in itself was interesting because it was a pure entrepreneurs’ view on the VC industry and start-up related government economic development agencies, questioning the way the system works from his angle.

But then… then… came the infamous WSJ article with as interviewee:  Mark Skapinker. Ouch! That one hurt. Why? Because the message that came across was wrong, the burning Canadian flag was an insult, and it created a false generalized impression that we, as Canadian Entrepreneurs and VCs had failed. No the Canadian Venture Capital Community is not dead nor broken, it’s evolving and that’s a good thing! The Canadian Venture Capital Community, like in any other country, needs to adapt to its own national realities while at the same time face global competition. And secondly, we do have great new and recurring entrepreneurs, that have proven time after time that we can built great companies (even though we end up selling most of them to foreigner). Can Canada afford to have more proven and successful Canadian Tech CEO’s and Entrepreneurs? Of course, 10 times more, easy! Do Canadian Venture Capital Fund have enough financial resources to fund all the great deals out there? No, and we need to convince more institutions to allocate funds to VC & PE and we need toshow then hard results and strong IRRS!   

For those of you who missed some of the action, here are  the few must read links related to the infamous article:

1.     The Wall Street Journal article itself: O Canada VC, We Stand On Guard For Thee

2.     The reaction, among others of Mark McQueen: Skapinker gives his homeland the Bronx Cheer

3.     The clarification blog by Mark Skapinker: Say it like you see it – and get kicked in the ass

4.     The Rick Segal reaction: Owww! I hate getting hit from behind

5.     The clarifying-clarification of Mark McQueen: Skapinker gives his homeland the Bronx Cheer part 2

I personally think that we can wish and want, complain and comment as much as we want. But the only way to build a successful business, a successful fund, to build a strong ecosystem, to innovate in an ever-changing environment, is by showing leadership. No one person, nor firm nor government will make any true difference “alone”. We can’t expect everybody to agree on “how” our ecosystem should be built or how our industry should thrive. But we can agree to respect the leadership of others, to work towards building a strong ecosystem and support those who take initiative in paving the way towards solidifying our Entrepreneurship and Venture Capital base.   

Call to action! If someone doesn’t agree on how things are being done, then instead of complaining, show leadership and take action. Everybody, in its own capacity, can provide leadership, do his/her part, or at the least, support the leadership it believes is right.

I look forward to read more about what SHOULD be done, yet I sincerely expect to witness more of what WILL be done.

Chris

  1. Great article Chris.
    My rant was absolutely from my entrepreneurs perspective at this point in my career. I worked for a VC in Boston and one in New York, and my father was one of the leading merchant bankers in Canada. In short, I’ve grown up around this issue.

    My point was not specifically centred about the VC industry itself. Techvibes titled the article, and in my opinion, mistitled. I am more concerned about the ratio of funds from government going to supporting the industry and creating a ‘ecosystem’. Ecosystems can be helped, but they are also created from entrepreneurs themselves. Look at Mesh, going on right now. Did government start that?

    My point was quite large sums of money are spent by agencies like MRI, OCE, MaRS, BDC, OMDC, and so on – fostering and deciding where money is going to be spent, with little sense of ROI. As one commenter on the Techvibes article points out, if I were putting my money in charity and so little funds made it through to the actual end-user, I’d be quite disappointed in my charity. This is my government funds, and I hope large amounts make it through to real entrepreneurs, less on admin.

    I’ll give credit where it’s due – and both the current MRI initiative and the Quebec Government’s new fund should help push things in the right direction, and it also should help the VCs in getting extra return for their investments as their companies get ‘bonus capital’ to help them grow.

    It’s great that this discussion is back centre stage. Perhaps one of my father’s old issues, capital gains taxes for venture investments can be raised again?

  2. Thanks.

    Funny you mention your father’s old issues: capital gains taxes for venture investments, President Obama is planing on attacking the current carried interest tax structure as capital gains. The impact will definitely be felt in Canada. So it will be a future discussion topic for sure. Meanwhile we have to make sure we continue to build a vibrant venture capital community and entrepreneurship ecosystem in Canada.

  3. Great post Chris + thanks for the mention. I had meant to chime on the whole exchange over Mark’s interview but was too busy. For better or worse we are definitely alive and kicking!

  4. Chris, I hadn’t seen that Obama was doing that. That should help the Canadian industry, no? It should even out the playing field because, as I understand it, Cdn VCs pay out on exit, but US don’t, as long as they keep it within the fund.

    Am I understanding that correctly?

  5. Obama wants to change the tax brackets for VC & PE Carried Interest from Capital Gains to it becoming pure standard taxable income (thus increasing the taxation on carried interest, to be non-capital gains).

    As for Cdn following the US as regards to the “when” it becomes taxable… not sure Canada will follow the US! So for now, not so great, but we will see.

    In my view the Cdn government should first and foremost focus on resolving th Section 116 of the Tax Act – which is why many US Funds are Reluctant to Invest in Private Canadian Companies.

  6. Hi! I was surfing and found your blog post… nice! I love your blog. :) Cheers! Sandra. R.

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