Montreal Tech Watch

I am the Canadian Venture Capitalists and Private Equity Association 2008 conference, held here in Montreal at the Fairmount Queen Elizabeth.

The conference started yesterday with a golf event and a welcoming cocktail. As in most conferences, it’s easy to see that networking and discussions in hotel lobbies are a big part of the conference, with investors discussing tips and current deals, and partners wooing institutional investors. The sessions in themselves began this morning, with fund partners and industry experts exposing stats and figures on the state of the industry, revealing challenges and difficulties but also improvements.

Many of the conference attendees had a different perspective of the industry and their current trade, but I saw 2 main trends.

First, private equity firms are doing good business. They have focused on buyouts and have had good returns. As a matter of fact, they have published an extensive report stating their good performance, much higher than returns found on stock markets (e.g. TSX), and how buyouts have benefited the Canadian economy, by helping companies flourish.

However, the picture is less clear for Venture Capital firms. Industry experts stated that VC firms are in crisis and that a few of them are bound to withdraw. While they are now closer to U.S. figures, Canadian VC firms are reportedly still doing too many early stage investments with even smaller rounds. Dr. Gilles Duruflé, one of the industry expert, also revelead that 10 year returns was on average just 1.8% for Canadian VC funds, compared to 18% in the U.S., raising the question on why institutional investors would invest in VC firms in the first place. Another expert from McKinsey stated that since there are less early stage investments, the dealflow is broken, and we might have now a broken ecosystem. Andrew Waitman, managing partner form a Ottawa VC firm, also mentionned the problem of geographic proximity and also structural problems in Canada.

There are some good news though. Exit values for IPOs and M&As have surged, and many funds are now looking to work with foreign funds, be it in the US or in Israel.

I have been with Jevon MacDonald from startupnorth, who said Venture Capitalists need to mingle with entrepreneurs, at a grassroots level, and participate with the exisiting startup community, in the regions they are geographically active, or even nation-wide. I would like to see for instance more VCs presenting to entrepreneurs what kind of startups they are looking to invest in, and also have more entrepreneurs getting more feedback on the validity of their ideas, be it in an event like StartupCamps, or by going an online space. Rick Segal who’s got a great blog and who is meeting entrepreneurs all over the country, is a perfect example, and we could use more of his kind.

Of course, what we’d need is also more major successes, and highlight them. ClubPenguin, a BC-based startup which has built an online world for kids, was acquired for $700 million by Disney almost one year ago, and I am not sure this has been given enough press. We also need more entrepreneurs, more boldness, and reach a critical mass of startups in Québec and in Canada in order to get a healthy startup ecosystem, with its share of failures but also successes. Most agreed we haven’t yet reached yet this critical mass, and there are lots of work ahead, for VCs and entrepreneurs alike to reach that point.

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