Canadian VCs urge young entrepreneurs to break ‘unrealistic’ expectations

Canadian VCs urge young entrepreneurs to break ‘unrealistic’ expectations

Matthew Braga | 13/05/30 | Last Updated: 13/05/30 2:37 PM ET
Young Canadian entrepreneurs tend to suffer from an “unrealistic expectation of values,” according to WIND Mobile CEO Anthony Lacavera, who spoke on a panel of Canadian venture capitalists Wednesday afternoon.

The group gathered to discuss the gap in understanding that exists between those with ideas and those with funding.

Mr. Lacavera stressed a need for better education of young entrepreneurs – but also a need to “break through that culture of risk aversion” that plagues Canadian VCs, who don’t act nearly as fast or aggressively as those in the U.S.The panel, organized by the Empire Club of Canada, was moderated by 680 News senior business editor Mike Eppel.

It included Amar Varma, co-Founder and chief executive of Xtreme Labs, and managing partner of Extreme Venture Partners; Anthony Lacavera, chairman and chief executive of WIND Mobile; John Ruffolo, chief executive of OMERS Ventures; and Michael Bloom, vice president of organizational effectiveness and learning at The Conference Board of Canada.

Each of the panelists agreed with Mr. Varma that it was time for venture capitalists “to make some risky decisions about changing the dynamic and make-up of our economy,” by making better investments in what is commonly referred to as the knowledge economy – startups and businesses built around Canadian talent, and not the country’s traditional reliance on natural resources.

“Innovation is what we’re lacking in this country on the scale that we need it, and we’re starting to look at why,” said Mr. Bloom of a study being conducted by the Conference Board.

Mr. Bloom described a typical funding scenario, where founders are often reluctant to give up control, have a lack of management acumen, or don’t know the value of their company as well as they think.

In many cases, Mr. Ruffolo said that startups and businesses don’t even need venture capital at all, and would be better off pursuing other avenues, such as boostrapping, instead.

“Venture capital is just one source of financing – and it’s the most expensive source of financing,” said Mr. Ruffolo, who described venture capital as an option only when there’s a window of time where funding is absolutely necessary, or the idea is lost.

“There are a lot of fundable businesses that we don’t fund because we’re not the right funder,” he explained.

However, Mr. Bloom cautioned that part of the blame also rests with venture capitalists, who in Canada tend to be risk averse – a tendency that contributes to “a gap in the way entrepreneurs are connecting to capital in this country.”

With the hopes of turning this status quo around, the Government of Canada announced a $400-million venture capital fund for the support of private sector investment in early-stage companies as part of the 2012 federal budget, and has pledged to deploy the funds over the next seven to 10 years through three separate streams.

Provincially, both Ontario and the three Maritime provinces have created their own regional venture capital funds, putting up $50-million and $32.5-million, respectively.

But Mr. Lacavera expressed concern that not enough of that capital would go into new ideas, and instead fuel existing ones.

Mr. Ruffolo was more direct, admitting that he wasn’t a “big fan” of the federal government’s fund, and would have preferred angel tax credits or corporate venture tax credits instead.

“Let the private sector place the bets,” he suggested, as opposed to creating more “structures and complexity that increases the amount of time it takes to get capital on the ground.”

Since the creation of OMERS Ventures’ $180-million fund in October 2011, for example, $120-million worth of capital has been invested over the past 16 months, Mr. Ruffolo said.

As for the $400-million fund, details such as which managers will be tapped to manage the investments, what conditions the funding comes with and an exact timeline for the deployment of the capital have yet to be made clear.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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