Foreign Funds Take Lion’s Share of Canadian Venture Capital

I’m not an expert in Venture Capital, so I’m not sure if this is a good trend or bad? Experts, what do you think?

November 13, 2007 | kraftdinner

One Response to “Foreign Funds Take Lion’s Share of Canadian Venture Capital”

  1. The Startup Guy Says:

    It’s an interesting thought. Of course, as with all media, one has to consider the source.

    Bear in mind that for a journalist (if that is from where this information arises) to report this information, it must have fomented from some group’s study or analysis. And I’m not suggesting any group has its own motives — but, they generally deal only in the realm in which they are comfortable.

    For instance, using this topic as an example, I would bet that it is tracking the larger-sized, later-stage venture capital investments. Foreign funds that would be interested in Canada as a venture capital nirvana in this realm would be doing so for macro reasons — that is, the economy is sound and growing, and any gains that are made on the business development front will not be lost on the currency exchange rate or taxation front.

    By the nature of investing funds, the international ones are larger, so on a size basis, they are going to dominate the landscape once they enter.

    However, it does not negate the importance of the earlier-stage, smaller investment-size funds that are active throughout Canada. These may be smaller, and their target investment is a smaller investment, but they drive the earlier stages of growth companies. Because every manager only has capacity for so much “bandwidth”, no matter what the size of the investment, you are completely involved with the investee company. So, no matter the investment size, each portfolio manager will only manage, say, five investee companies. Five times a two million dollar investment is much smaller than five times a twenty million dollar investment.

    Which brings us around to the corollary: earlier stage, smaller investments require greater percentage returns to be worthwhile for their target investors. Higher expected return equates to higher risk.

    We can get statistics to say what they need to say.

    Perhaps, if we looked at the number of investments that angel investors and early stage (typically local, Canadian) investors make in Canadian companies, rather than the size of the investment, I would bet that local investors dominate significantly.

    Unfortunately for reporters (but obviously a choice of early stage investors), these investments are not as widely broadcast. Why would the investor increase the competition that is looking at their deals? There are lots of good reasons to remain below the radar screen in your investment activities.

    December 8, 2007 | Greg McLean

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