This is Roger Martin, reporting from Mars

11 responses

  1. Gary Will says:

    Although you were being facetious in your comment about the U of T EMBA, that’s pretty much what Martin’s Institute for Competitiveness and Prosperity actually does think. They squak against LSIF tax credits and other forms of government “interference” in the free market, but think that governments couldn’t invest enough to promote management education.

    When they say “the evidence is clear” about LSIFs, they mean that one ideologue has been republishing for nearly a decade a paper he wrote about LSIFs “crowding out” other VCs. When you agree with an ideologue, their polemics become “evidence.” I blogged about that last year:

    BTW, I can guess what their response to your list of good LSIF deals would be: it’s because of the uneven playing field created by LSIF tax credits that those funds can outbid other VCs on the best deals. Seriously, that’s what they say.

  2. Mark McQueen says:

    Hi Gary

    You are so right on all fronts. Dr. Martin can’t believe that other traditional VC funds would have backed those same entrepreneurs and companies cited in the list. If he does, then he assumes a level of group-think in the VC industry that doesn’t exist in other entrepreneurial elements of the economy.

    I could hazard a guess that several of those six examples, other than Sandvine, didn’t receive another term sheet


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  4. IMHO, Dr. Martin is right that Ontario’s and Canada’s key challenge for venture capital is the quality of investments we are making. This is especially truthful saying for Toronto…

  5. Duncan says:

    Excellent post Mark.

    There is a school of thought out there that VCs do better when there is less funding (only the good deals get done.) But there is no data out there (globally) showing that fewer VCs (of any kind) make for a better climate of innovation. Theoretically MORE VCs are a better thing. Or is
    Dr. Martin saying that the plethora of VC funding sources has hurt startups in Silicon Valley, Boston and San Diego?


  6. Brian says:

    I”m not sure whether I’d agree with either position here, or perhaps is a question of definition. Having recieved much of my education on VC funding from the U.S. I’d call most of the investments made by either the “VCs” listed here, LSIFs or GrowthWorks, which I’m not sure really is a VC, midmarket deals, not venture money. They are mezzanine financing on secure(ish) companies.

    The real gap in the market, not addressed fully in either here, or in Mr Martin’s paper is in the early stage of company growth. In theory it should be where some big bets are made, and some big returns could be found. This market is basically non-existant in Canada apart from some gutsy individuals. (Sandvine got it’s start on the guts of serial entreprenuer Terry Matthews – the follow-on investment was a mezzanine round)

    I’m not sure whether anything can be done about this in the short term apart from tax assistance for angel investors, and easing the ability of US VCs to invest in Canadian companies through an alignment of tax and corporate treatment of cross border transactions.

  7. petetoth says:

    I agree with Brian on this one. It’s kind of like giving Citi or GM a loan. Oops, bad example. You know what I mean…

  8. John Arnott says:

    This is a complex issue and I think all opinions are partially correct however, I’d like to add a slightly different perspective.
    Success or failure of a new venture is of course determined largely by the intelligence, skill and experience of the team. This can be augmented by advisors but they are not a substitute for sound management skills.
    Canada starts approximately 140,000 new businesses a year and closes 130,000 so if the net 10,000 have 5 members, that’s 50,000 people who need start-up experience. From my experience, the majority are fueled primarily by adrenaline and greed, not experience.
    Also, from work I have done for Industry Canada including data from IC, OECD, and Stats Can, only 6% of new companies are built around a new technology, another 6% use some technology, but 88% use no new technology!
    It’s easy to find conflict with so many variables.

  9. Husein says:

    I believe that the tax credit system supporting Labour-Sponsored Venture Funds has to be ‘extended’ to Angels. Angles are the individuals who are going to back “early stage”, high risk, new ideas…

    Angels will likely incubate the next Sandvine, therefore we should all be championing a tax system that affords them the ability to take on risk.

    Let’s address the real problem, and let the free market figure out if LSVF work or not. If I can invest as an Angel with the same tax benefit as putting my money in a LSVF, I am making a decision as to my ability versus that of “professionally managed money”. Think discount brokerage versus mutual funds.

    The more we can do to increase the supply of capital the better…

  10. Ian Anderson says:

    As a contract CEO and director of start-up and early stage companies over many years, mostly in biotech and medtech, I have not found that labour-sponsored venture funds made better or worse investment or board decisions than those who were funded by other means.

    The difficulties Canadian company founders face have been known for years, viz. too little capital doled out too slowly, and a lack of diligence expertise and nerve outside tried-and-true investment categories. One of several promising crossover situations I have been involved in was a chemo-informatics-based drug discovery company (back in those not-so-long-ago days when drug discovery was still hot)- Canadian tech VCs told me they ‘didn’t have a slot for virtual chemistry’ and biopharma VCs said they ‘didn’t do software’. There were experts in advanced computational chemistry out there, off-shore, that we could recommend, but the appetite for crossover just wasn’t there.

    We did get it funded, in Montreal, but not by VCs (or angels).

    Today I’m looking for advice about business models and funding for a start-up Internet service. It can’t be sold by viral marketing and it’s B2B not B2C, and, despite all the talk of taking Web 2.0 to B2B, I’m not surfacing professional venture investors who seem eager to get their minds into business models for new uses for the Internet.

    Money provided by truly creative venture thinkers are what we need more of; whether and what kind of tax breaks needs to be focused on fostering creative risk taking in a world of increasing technological crossover. If labour backs that, fine with me if they keep favourable terms!

  11. Andy says:

    Venture has become almost totally oriented towards IT/software companies. Made sense when the exit market of ipo was viable, as that’s what that end market wanted. But with most deals now defined by strategic takeout, maybe its time to think about venture more broadly. New media start ups? Retail/restaurant chains? Materials science, other than subsidy driven clean tech? Innovative wealth management concepts/firms? New venture lending firms?

    My institution has supported all of the above (including the last, dealing with movie an tv production finance). Not popular at all, I guess everyone is looking for disruptive investment oppoortunities, in short time frames.

    The problem with Canadian vc is it takes longer to build a great company than most people seem to be able to organize around. I think Roger Martin is really pointing our the fallacy of seeking short term gratification by random investments made within flawed vc business models. The solution lies in longer term investing, in lower volume, with much more concentrated bets.

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