Venture capital not distributed evenly in Canada

Imagine a cargo plane loaded with billions of dollars in cash.

As the jet flies across the country, its cargo hatch is opened and its contents are unloaded.

About $1.9 billion falls in Ontario and another $1.1 billion in Quebec.

Saskatchewan’s share? A measly $16 million.

Such is the state of venture capital in Canada.

In 2018, the total value of venture capital investments in Canada — the amount of cash loaded in the imaginary plane’s cargo hold — was $3.7 billion.

Of that amount, more than 51 percent was dispersed to startup businesses in Ontario and another 30 percent landed in Quebec.

Saskatchewan entrepreneurs attracted less than half a percent.

“We are just miserable at securing capital, especially in the venture capital space, in the prairie provinces, especially in Saskatchewan and Manitoba,” said venture capital manager Sean O’Connor.

“Saskatchewan and Manitoba combined received less than one-and-a-half a percent of the venture capital invested in Canada (in 2018), and that’s something we need to start correcting right now.”

Venture capital is capital invested in entrepreneurial ventures with high start-up costs, little or no early-stage revenue, and high-earning potential over the longer term.

During a recent presentation in Saskatoon, O’Connor said Canadian lenders have an exceptional track-record when it comes to financing mature companies that are ready to scale up production and expand established markets.

But early-stage capital is something the financial industry struggles with, especially in the prairie provinces.

“We don’t have banking products that fit today’s entrepreneur in the digital ecosystem,” said O’Connor, referring to innovative on-line businesses.

“It’s not easy to lend to a startup that’s losing money, month after month in the early stages, but has this high growth potential.”

“Our solution is that we need to have boots on the ground, here.”

O’Connor is the manager of the Conexus Venture Capital Fund, a made-in-Saskatchewan fund aimed at local startups.

The fund, valued at $30 million, is expected to launch in the next few weeks.

It will provide financial support to some of the province’s most promising entrepreneurial ventures in the digital technology sector.

About 50 percent of the fund’s value will be furnished through Conexus Credit Union. The remainder will come from private investors and other commercial lenders.

The fund is targeted at news startups with high growth potential, capable of creating wealth, jobs and an investment environment that encourages promising entrepreneurs to pursue their visions at home.

“We’ve got a lot of early indicators of a startup ecosystem that’s really picking up momentum here in Saskatchewan,” said O’Connor, citing digital companies such as Skip The Dishes, GasBuddy, Vendasta and 7Shifts, which won the 2016 Startup Canada Award for high-growth entrepreneurial endeavours.

“We have a lot of momentum in the ecosystem but there’s still this huge void of venture capital being deployed in the province.”

“As a credit union, we’ve always stood behind Saskatchewan-based entrepreneurs but now we’ve got this new type of entrepreneur that we don’t really have banking products for, so how else can we fuel their growth?”

Through Conexus CVF, “we think we can deliver outside returns to our investors while funding our most promising startups right here in Saskatchewan.”

Conexus VCF will focus on investments in the range of $500,000 to $4 million.

The fund is expected to begin dispersing funds by the middle of June.

To assist digital entrepreneurs further, the fund will assist startups with the often thorny and time-consuming process of protecting their intellectual property.

“We have a significant problem when it comes to protecting IP in Canada,” O’Connor said.

“We’ve done a poor job of getting patents put in place to protect the intellectual property that we’re creating.”

Conexus VCF will cover the cost of IP protection on behalf of portfolio companies, leaving entrepreneurs more time to focus on developing technologies, building markets and running their businesses.

O’Connor is also involved in raising capital for another venture capital fund, Emmertech, which hopes to raise $120 million over the next year. It is aimed at funding companies involved in developing new agricultural technologies.

The Emmertech Fund, combined with $153 million of investment capital to be dispersed through Protein Industries Canada, will support entrepreneurs in value-added agriculture who lack the startup capital and early-stage cashflow.

Contact brian.cross@producer.com

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