in Canada, Venture Capital

The Changing Landscape of Venture Capital

Editor’s note: This is a guest post by Kevin Swan (LinkedIn@kevin_swan). Kevin has cut his chops doing product management at before becoming it’s CEO. He moved to the dark side with Cardinal Venture Partners and is now a Principal at iNovia Capital.   Thankfully he is an MBA dropout and that’s why we like him. Follow him on Twitter @kevin_swan or This post was originally published on November 4, 2011 on

CC-BY-NC-ND Some rights reserved by DanMaudsley
AttributionNoncommercialNo Derivative Works Some rights reserved by DanMaudsley

There has been a lot of discussion recently on the changing landscape of venture funding and what it is leading to. I thought that it would be worth digging into this a bit and, as most of the discussion and data is from the United States, put a Canadian spin on it as well.

There are two driving factors that are shaping the current startup landscape – the extremely low barriers and costs to start a tech company and the availability of seed or angel funding. Now, I am the last one to think that there should be any barriers to starting a company, but you need to make sure you are not just starting a company because you can. You need to know what you are getting into and, if you plan to raise any capital, know what is lying ahead.

The number of new startups we are seeing has been increasing at an alarming rate over the past couple of years across North America. Did you see Paul Graham’s recent tweet that Y Combinator was receiving an application a minute? All that starting a legitimate company takes these days is a couple of smart people with computers. Getting to the next stage is a different story though.

The seed and angel funding market has exploded with many new “super angels” as well as emerging seed funds entering the space. It was joked that a Google engineer could quit, walk onto the street and get a $500K angel investment to start a company. This is not far from the truth as anyone in the upper echelons of web development and design talent has a good chance of getting seed money these days.

Capital raised and invested by venture firms.So, what is starting to happen to all these companies? Well, like most startups, they need more money. Some need money to fuel massive growth – these rounds have turned into highly competitive financings and are attracting crazy valuations. However, most (~99%) are going to run out of money while showing some progress, but not enough to have VCs scrambling to write checks. To make matters even more challenging, VC fundraising continues to drop to levels not seen since before the dotcom boom. This scenario is even more alarming in Canada.

Despite all these changes one thing still remains – it costs a lot of money to scale a company. Sure getting started is cheap, and that is great, but you are eventually going to need money to build a big business. If you are really fortunate you will be able to do this through sales, but few have that opportunity. The result is a large demand of startups needing Series A and bridge funding and a smaller supply of available funds. Many believe that this is a healthier environment as the returns of venture capital since the dotcom boom have been less than desirable as the industry became bloated. It is important to know that most VC funds have a 10-13 year life so all that money raised in the late 90s and early 2000s is just now starting to wind up.

So what about Canada?

Well, whether you believe it or not the border is becoming much less relevant when it comes to venture funding so Canadian startups (and VCs) are all in pretty much the same boat. The complaint most commonly heard in Canada is that there is not enough early-stage funding. I disagree. Great companies in Canada are getting funded and acquired. However, with the increased competition for Series A funding there are a lot of good companies that won’t be able to raise money. This does not mean that they won’t be successful, but they are going to have to take a path that doesn’t rely on venture funding. Unfortunately many don’t plan for this reality.

With all that said I, like many, are concerned with the direction venture capital fundraising is going in Canada. While it is great that US funds are now starting to ramp up investing in Canada they usually do it alongside Canadian funds – such as the recent case of Union Square’s investment in Wattpad alongside Golden and W Media. Also, Canadian funds are valuable in actively recruiting US funds into local companies. While it is great having talented investors from the US active up here it does not replace the feet on the ground that are needed and Canadian investors fill.

Editor’s note: This is a guest post by Kevin Swan (LinkedIn@kevin_swan). Kevin has cut his chops doing product management at before becoming it’s CEO. He moved to the dark side with Cardinal Venture Partners and is now a Principal at iNovia Capital.   Thankfully he is an MBA dropout and that’s why we like him. Follow him on Twitter @kevin_swan or This post was originally published on November 4, 2011 on

  1. I agree Kevin that there is plenty of seed round funding in Canada’a tech cities like Toronto.  As stated in another Startup North post (, there are a lot of new VCs who are playing in that range.

    And while it seems like there is a squeeze for A round funding, I would term it differently based on what we are seeing right now while pursing our A round.  There are plenty of VCs who have money left in their funds who are looking at new opportunities, some of them even in Canada!  But given the competition for those funds as well as the economy, a lot of VCs are being extra cautious and demanding greater revenue traction.  

  2. Good points, Ray.  Toronto and Vancouver are probably the two best cities in Canada for seed funding right now.

    I agree that there is still money to go around and, trust me, the top startups will get financed.  The challenge is that the funnel is widening and there is a going to be more competition going forward.  I think that some VCs may be tightening their wallets in preparation for this.  Other factors could include rising valuations and an uncertain economy, as you mentioned.

  3. Although the barriers to starting-up have been lowered, the barriers to success have increased due to the sheer multiplicity of companies vying for market attention.

    On a relative basis, there is still a low availability of seed & series A funding options in Canada. The environment is mostly conservative. And one cannot generalize that all US VC funded companies are accompanied by Canadian VCs. You have to consider who is leading the fund & who is following. Any VC firm in the world would gladly fund alongside USV. Not all US VC need a Canadian counterpart to invest here.

  4. William,

    Can;t argue with the relative capital availability argument, but the conservatism point is i.) a stereotype; and ii.) a function of this supply issue to the extent that it is true. In the absence of US investor competition, Canadian investors have more choice and more time to make their decisions.

  5. Mark,

    I think a lot of Canadian entrepreneurs struggle with how to become signal in a very noisy environment. In other markets, there are competitive pressures to get good deals done. In Canada, the conservatism puts more risk on the entrepreneur and requires further corporate development in order to derisk potential investments or rise above the noise level. The struggle for an entrepreneur is how much value is there beyond the capital injection from a conservative financial institution run by lawyers and bankers (and accountants ;-).

    We’ve seen with @FounderFuel:twitter and @GrowLab:twitter and @yearonelabs:twitter to help mentor and guide entrepreneurs in the early stage beyond the capital injected. There is a question about the need for follow on investment (see Dave McClure’s comments!/davemcclure/status/132955763869093888 ) that if we can teach entrepreneurs how to focus on customers and revenue (vs SR&ED and grants) that might provide Canadian entrepreneurs an additional path to success. 

Comments are closed.


  • » Location, location, location | StartupNorth November 9, 2011

    […] Getting started is cheap, but eventually everyone needs money to keep that ball rolling. Hopefully by this point, you’ve already got traction and your idea is gaining momentum. Without some form of traction, it doesn’t really matter where you are. If you do have it, however, it is easier to secure government and angel funding in a province like New Brunswick. Why? You will encounter significantly less competition – if any – for what money is available. […]

  • Canadian Venture Investment Grows 51% November 9, 2011

    […] early stage funding?Mark Evans points out that there’s still a lot of complaining going on, Kevin Swan from iNovia Capital weighs in with his views of the changing landscape, U.S. investors are more […]

  • The Changing Landscape of Venture Capital | iNovia Capital November 9, 2011

    […] post was originally published on November 7, 2011 at […]