A city with a high-tech hub is a bit like a shopping mall, says Vancouver expat and Silicon Valley venture capitalist Anthony Lee: it needs the gravity of at least one large anchor tenant to pull in other satellite businesses.
Until recently, Vancouver didn’t have the kind of startup success stories that might draw the eye of Silicon Valley investors northward. In fact, the biggest high-tech news coming out of Canada a couple of years ago was the decline of BlackBerry.
But thanks to the growth of companies like Hootsuite, Vision Critical, BuildDirect and Avigilon Corp., that is starting to change.
In 2013, Canadian companies drew $2 billion worth of venture capital investment – the most since 2007, according to Canada’s Venture Capital and Private Equity Association.
“I think it has been difficult in the past, and I think it’s changing,” said Lee, a partner in Altos Ventures. “I think it’s been difficult primarily because Vancouver has not produced a whole lot of big tech winners.
“In Canada, you now have companies like Shopify in Ottawa, Hootsuite in Vancouver – you are starting to have some billion-dollar-scale companies. Those are, I think, changing the whole story.”
Having the TED conferences hosted in Vancouver won’t hurt the local startup community’s profile either, Lee added, because a lot of Silicon Valley visionaries use those conferences for networking.
Chris Albinson, who is also a Canadian expat and Silicon Valley-based venture capitalist, co-founded C100 with Lee. They formed the organization in 2010 to help Canadian entrepreneurs make connections in Silicon Valley, which is said to be home to 300,000 Canadian expatriates. Albinson agrees with Lee that Silicon Valley venture capitalists seem to be taking a renewed interest in Canadian startups.
“We’ve had over US$700 million invested from the U.S., and we’ve had almost US$5 billion in exits,” Albinson said.
The single largest venture capital raise in Canada in 2013 was the US$165 million invested in Hootsuite. In six years, founder Ryan Holmes has built Hootsuite into a 500-person company, and he has resisted all offers to be acquired.
One of Hootsuite’s earliest investors was Blumberg Capital, which invested a total of US$2 million in the company in two different rounds.
“We invested over $2 million and have already taken home about $46 million, and have a whole other big chunk of the company in our possession,” said David Blumberg. “We’re still large shareholders there.”
Blumberg has a new $150 million fund – his third – and his first investment from that pool was in another Vancouver startup, Trulioo, which developed login authentication software that allows people to sign into websites using their Facebook or Twitter IDs.
Blumberg led the investment in Trulioo with US$2 million, and others have since followed. In March, Trulioo raised another US$6 million in a Series A financing.
But just because Silicon Valley venture capitalists are starting to take interest in Canada, that doesn’t mean they are parachuting into B.C. with bags of money.
In Trulioo’s case, co-founder and CEO Stephen Ufford ended up having to move to Silicon Valley for a few months because he just couldn’t find the capital he needed to get Trulioo off the ground in Canada.
“I had to go down there to get Trulioo going,” Ufford said. “The issue with Vancouver is that everything is at a much smaller scale, so the appetite for risk is also much smaller. In Silicon Valley, the opposite dynamic is true in that the funds are just so much larger.”
Although Vancouver startups looking for venture capital don’t necessarily need to move to Silicon Valley, they need to make connections there.
A good way of doing that is getting accepted into Vancouver’s GrowLab, Albinson said.
“It’s one of the best early-stage incubators and communities there is in North America right now,” he said.
GrowLab has invested in 23 companies to date, helping them raise more than $9 million in early-stage financing. Albinson also encourages Canadian startups to try to get accepted into C100’s annual 48 Hours in the Valley and to participate in the annual Grow Conference in B.C.
