Fast changes for Venture Capitals and Angels in technology (10)
Wellington Financial, a Toronto-based “venture debt fund”, posted yesterday statistics for the VC industry in Canada, for the IT industry. For the first half of 2007, a total of $200 million deals were reported, compared to $234 million in 2006, $460 million in 2005, and $1.2 billion in 2001. The author is alarmed and puzzled on how the figures are so low.
Now, it can be interpreted in two ways, first that Canada is missing the boat. In the US, Ernst&Young and Dow Jones VentureOne reported that investement reached an all-time high in 2007, with $979 million, the highest figure recorded since 2001. This is a stark contrast with what’s happenning in Canada, and you may think that it represents a threat for the Canada’s technology sector, in the sense that less investement slows down innovation and development of new technologies and new markets.
However, there is a second interpretation. The US has 10 times more population than Canada, and $979 million would mean $97,9 million in proportion. Canadian investement seems then twice more active than its american counterpart. Also, I would say that you have to take in account that the model of tech entrepreneurship has mutated since 2001. You need (much) less capital, and you also need to be faster, more reactive and agile, and in a sense smaller than “web1.0″ startups. There are more entrepreneurs and innovation, but many are now self-funded, bootstrapped or are going through new initiatives like Y-Combinator, TechStars or SeedCamp. Daniel Drouel, an “angel” investor from montrealstartup.com, has made recently a series about the changes in tech investements, and I think it nails the point on why VCs must change and adapt to the times. He made a recap of VC funds and how the industry operate, how infrastructure and technologies are cheaper these days, and what are the new initiatives in the North America and in Europe.
seedcamp is in London, UK, and is inspired heavily from YCombinator
techstars is in Boulder, Colorado, and operated by ColoradoStartups. They also initiated the first startupweekend
Ycombinator is a summer startup school in Boston. It was started by Paul Graham and has had much success.
VCs must realize that if they want to invest in technology, they will have to adapt to the times, deal with more tech entrepreneurs but get less control, and start new initiatives like startup schools which are more relevant to industry’s needs.
Your definition of technology in this piece is incredibly limited. I think you are more or less right for software/media/internet investments, but not for biotech, cleantech, semiconductors, telecom gear, etc.. Different models for different sectors.
Also, you want VCs running startup schools? Figured that would have most entrepreneurs running for the hills … ;)
Hi David, you are right, I titled the post as Technology but this covers the web (like Daniel Drouet’s post), I focused on this topic because that’s the one I know about. sorry about that.
and why not “startup schools”. i am finding your reaction “incredibly limited”. it looks like you are sitting comfortably in your vision how VCs should operate and how they should approach entrepreneurs. sighh..
“and why not “startup schools”. i am finding your reaction “incredibly limited”. it looks like you are sitting comfortably in your vision how VCs should operate and how they should approach entrepreneurs. sighh..”
Is this baiting me? I was being a bit tongue-in-cheek to express my surprise that entrepreneurs would want start-up schools run by VCs - generally we are bashed for “sitting comfortably” and not knowing what its like to be real entrepreneurs. Your comment and sigh are reached without knowing pretty much anything about my approach to venture capital.
How would you see startup schools working? Would people be fine with 1-5% of the attendees being funded (that would be the ratio)? Would we get shares in every attendee as payment for the school, or would we charge cash (that you don’t have which is why you want to raise money) or would we be expected to eat the cost out of our marketing budget? Is there really a demand - in Vancouver, where I am, there are monthly VEF (www.VEF.org) events on these topics, the BCTIA (www.BCTIA.org) constantly has events, the various accountants/lawyers have bootcamps, Telus New Ventures BC competition has classes and mentors (and a very healthy prize at the end), etc.. At least in Vancouver, I don’t see a huge gap. What would you like to see in a school that is not currently provided elsewhere?
Then of course, if you came to our VC school, we wouldn’t have to compete for your deal, right? ;)
I’m not opposed to the concept, but I think there are a lot of questions to be answered. We have a seed program, as do most other VCs these days, so we are familiar with early stage investing and the issues that go with it. I’m not sure a school is the answer, but I’m willing to be convinced - the operating word in venture capitalist is capitalist, if it makes financial sense it will probably get done.
hey, i would be interested in how you run your seed program. do you follow each entrepreneur closely? how do you manage your portfolio then?
in a startup school, i wouldn’t see entrepreneurs paying for it. the view is that the VC fund will get the bests opportunities at the end, so you will get your investment back. I guess you can view it as a selection process. About capitalism, a startup school allows you to spread risks and get more deals. of course you will have less control and you should consider more risky business plans.
you should have a look at ColoradoStartups.com, it’s a fund based in Boulder and I find them very innovative
Hi there
Here is the follow-up data and post.
http://www.wellingtonfund.com/blog/2007/08/05/brutal-venture-capital-stats-for-h1-2007-part-2/
Salut
MRM
Responding to MRM, first, I can get into a long discussion of VC numbers in Canada vs US as I know the data quite intimately. The key to US data is to look at what a vast % Silicon Valley and/or California represents. Also, look at the early stage vs late stage $ in US vs Canada as well as the average deal size. You will see Canada, on a relative basis, does far TOO MANY early stage deals with the money we have available. The US does fewer dollars relatively, and much fewer deals. We have the double problem, less money and too many deals = significantly lower average deal size. This was particularly acute in Quebec until the recent changes in the VC market. This applies more to all tech on average, and less specifically to the software/internet/media markets that are relatively less capital intensive. Happy to share data/numbers from Canada, US, Europe, or Israel if people need them.
Back to the main topic on seed investing. We don’t do a big whack of seed deals, maybe 1 or 2 per person (although there is no strict allocation) so we manage and work with them closely like any other deal - often more so due to the early nature of the company. For me, check out http://www.dabbledb.com as one I/we did last year, and I’m just in the middle of doing another right now. We are on the board, we are helping with staffing, corporate/financial stuff, strategy, product managment (my background), media, general connections, etc.. Pretty much everything except code - you do not want any of my code in your product! ;)
The harder question for lots of companies is do they really want/need venture funding? It is a tool like a power drill, only use it if you actually need it. Trying to measure with a power drill is pretty useless, and sometimes VC is equally useless. Anyways, lots of me typing. Happy to chat, email, IM, etc. on the topic.
Hi david,
thanks for the feedback,
i won’t go into details, i think we both know who is the expert here, but i just want to say that in Québec, there are too many venture capital aiming for big deals. i saw statistics saying that it’s the 4th region for VC per capita in the world.
for technology entrepreneurs, what we need in quebec right now is more seed investors and more early stage deals. of course, this is not what investors are looking for. but you have to get through this so that they actually have ‘real’ companies to invest in the future.
[...] Wellington Financial is making the statement that there is just a dismal investment record for the first half of 2007. MTW has this comment: VCs must realize that if they want to invest in technology, they will have to adapt to the times, deal with more tech entrepreneurs but get less control, and start new initiatives like startup schools which are more relevant to industry’s needs. Source: Montreal Tech Watch [...]
[...] about venture capital investment in Canada. (August [...]
[...] Wellington Financial is making the statement that there is just a dismal investment record for the first half of 2007. MTW has this comment: VCs must realize that if they want to invest in technology, they will have to adapt to the times, deal with more tech entrepreneurs but get less control, and start new initiatives like startup schools which are more relevant to industry’s needs. Source: Montreal Tech Watch [...]
Leave a Reply