Toronto's tech buzz is awesome, but results are what will ultimately matter

By any measure, Canada’s venture capital market, and the ecosystem as a whole, appears to be on fire. I can’t think of a time over my 10+ years of blogging when I might have said that, which is notable in its own right.

Choose your own metric: number of industry events, flow of equity, size and number of larger equity transactions, attention of all levels of government, academic focus, media coverage…it is fair to say that things feel better than at any time in recent memory.

Another bright side is the sector’s decreasing reliance on direct investing by the Business Development Bank of Canada.  In BDC’s fiscal 2017, the Feds added just 18 net new companies to their venture capital portfolio.  Compare that to the fact that there were 530 VC-type equity deals in 2016, according to the CVCA.  While the innovation economy desperately needed VCAP (see prior post “CVCA letters to Messers Flaherty, Clement and Ignatief” Dec. 28-08), and it is working wonders, the sooner private capital replaces taxpayer’s dollars, the better.  Whether that be equity or debt!

Many barrier to success still remain, however.  There’s still a paucity of Angel money, a systemic gender imbalance, Canadian banks remain largely on the sidelines when it comes to innovation lending, most Institutional Investors haven’t added venture to their asset allocation model, and I’ve seen no stats to suggest there’s been a material increase in the commercialization of University or government-generated R&D.

This positive upswing in momentum stands out for Toronto, in particular.  While Montreal always felt the biotech love, and Waterloo attracted out-sized attention from corporate and VCs from south of the border, Toronto didn’t have much to talk about.  Mayor’s Miller and Ford were focussed elsewhere, and the Ontario government believed that by backing a real estate boom at Mars, their work was done (cutting budget allocations to OVCF and OETF sure didn’t help).

Was the uptick organic?  It is hard to put your finger on when Toronto actually got its mojo going.

The launch of Georgian Partners and OMERS Ventures (see prior post “Thank heaven for Michael Nobrega” June 17-16) are certainly relevant, since capital is the key, but the launch of OneEleven, TechStars, C100, and U of T’s Creative Destruction Lab, the billion dollar IPO of our Fund III portfolio co Real Matters (see prior post “Real Matters’ Billion dollar IPO demonstrates that it Can Be Done” May 5-17), not to mention Ottawa’s welcome attention to the artificial intelligence sector, are all examples of the building blocks that have given journalists at the Globe/WSJ/National Post/Reuters/Bloomberg something tangible to write about.

And that backdrop invariably leads to Google flying into town with their Sidewalk Labs proposal, for example.

Just last week, Toronto Mayor John Tory was in New York City talking up an alliance that has been formed between our two cities.   New York is definitely a “happening place,” which is exactly why we opened our third U.S. office there last July.  Over the past six or seven years, NYC has overtaken Boston as an target for venture capital investment, according to PWC MoneyTree stats.  In 2002, a Toronto Mayor would have set out for the Red Sox Nation, not Yankeeland, if he-she was building innovation-related bridges.

Boston’s new place in the North American VC pecking order is worth noting, if we think it`ll be easy to convert the glow that currently surrounds Canada’s largest city into tangible results.  Boston had ~30 local VC funds, it had the serial entrepreneurs, the research institutions, an experienced group of professional advisors, a supportive State government as well as sufficient numbers of institutional investors.  NYC still leapfrogged it just the same.

The buzz is awesome right now, but tangible results are what will ultimately convert this new, welcome attention into a sustainable future for Toronto’s innovation economy.

Let`s get to it!

MRM