Canadian VC firms can learn from US counterparts to become less risk averse

As the Canadian investment market continues to be conservative in their investment strategies, startups can expect a mix of local and global investors joining forces to fund them. The 10^th Canadian Innovation Exchange (CIX), held in Toronto October 17–18, heard both tech giants and local investors discuss their investment strategies, particularly where they plan to invest and what type of investments they are seeking.

The venture arms of several tech giants say they are looking forward to forge partnerships or invest in Canada, particularly in the GTA and some key investment sites, such as Waterloo and Montreal. And they won’t hesitate to work with other investors in investing in promising startups.

Elliott Robinson, partner at Microsoft Ventures in the San Francisco, CA Bay area, echoed what the Canadian VC market has long been known for – and confirmed by independent reports and studies – that they are risk-averse. In contrast, the Silicon Valley technology investment ecosystem is more mature, more experienced and more willing to embrace risk – even to the point of failing.

“Failing is not seen as bad; it is part of the culture.… Failing is okay, if you learn something from it,” Robison says, adding that his firm is looking for series A & B deals in Canadian companies focused on artificial intelligence and machine learning, fintech, and healthcare. “We are actively investing in Canada; I’m actively looking at an AI-deal in the short-term.”

Priya Saiprasad, principal at Microsoft Ventures, says that her firm’s average deal in North America is US$3.7 million. She also notes that Canada’s technology corridor – GTA, Waterloo and Montreal – is attractive to invest in.

Paul Bernard, director of worldwide corporate development for Amazon’s Alexa Fund, says his firm’s business model is to help build experience on top of the Alexa platform in partnership with other investors and companies.

The $100 million Alexa Fund is looking for startups working on voice technology innovation, particularly those that can be integrated with its voice-powered service. For example, Amazon recently invested in Vancouver’s Mojio, which provides solutions for connected cars.

Harry Singh, director, Intel Capital, says where it makes sense for Intel to collaborate in a Canadian startup, it would, and where it makes sense to make an equity investment in a company, it would go in that direction.

Intel and Microsoft are some of the tech giants that recently invested in Montreal’s Element AI, which develops artificial intelligence solutions.

Tech giants from Silicon Valley have been recently looking north of the border for investment opportunities to the tune of billions of dollars.

The situation was starkly different just a few years ago says Jim Orlando, OMERS Ventures' managing director. Orlando says that when OMERS Ventures was just starting six years, there weren’t many savvy technology investors who were investing in Canadian startups and then kept coming back.

“Part of the additional capital coming into the Canadian startup industry is a positive recognition of the level of innovation that we have here,” he says. What sets OMERS Ventures apart, however, is that it is focused on companies with the potential to scale.

Orlando says OMERS Ventures offers its brand behind local startups to make them more attractive to other investors who are looking for Canadian technology companies to invest in.

“Much of what to do is to be the right investor here for Canadians in Canada and to focus in Canada, trying to take advantage of next scale. So that when the larger funds come in or fly in, they (startups) have OMERS Ventures as a backer in Series A,” says Orlando, adding that, in some venture capital ecosystems, there is no winner-take-all mentality.

“What lots of companies strive for is to have the best of both worlds – a good strong local community venture investor (and) also a co-lead or perhaps a later lead for a subsequent round from a good strong US backer to give access to US investors,” he adds. “We can co-invest or co-lead, or we can invest in Series B and someone can invest in Series A.”

A recent report from Univ of Toronto’s Impact Centre notes that Canadian VCs are more conservative in their investment strategies compared to US counterparts. Aside from the fact that the VC markets in the US are more mature and experienced, they also have deep pockets. Thus, there is a tendency for Canada to lose its local companies to global investors. In the process, Canadian startups also miss out on evolving their innovations all the way to commercial scale.

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