Venture capital for tech startups remains at a premium in Vancouver but the tide could be turning, attendees at an investor event in the city were told.
The provincial government’s recently announced $100 million tech startup fund and first-quarter results from the Canadian Venture Capital & Private Equity Association (CVCA) have the industry thinking positive lately, but the word on the ground is that it remains difficult to procure funds fr om the city’s investment community.
Michael Gokturk, founder and chief executive officer at Payfirma, a mobile payment systems company, pitched at last week’s TSX/CVCA Technology Investor Day in downtown Vancouver. Gokturk, whose company is in the second institutional round of funding, said the city is undergoing an investment mindset shift that will take some time. Gokturk added it’s important to take into account Vancouver’s size in relation to more established technology investment hubs like Silicon Valley.
“The market is 10 times smaller in Canada [than in the U.S.],” Gokturk said. “And we have been addicted to commodities and resource-based finances here because we know, we can feel it, we can budget it. It’s a real commodity that has a real price. So investors have become addicted to financing these types of investment vehicles, and tech has been relatively new in Canada.”
Gokturk said he’s mentoring a few tech companies in their startup phase, and their dissatisfaction with the environment for raising capital is evident. “It’s very, very hard and it’s frustrating for them right now.”
According to the CVCA, in 2013 there was $480 million of venture capital investment in the sector in B.C. That number rose to $654 million in 2014 but dipped back down to $464 million in 2015. First-quarter results for B.C. are already at $207 million, which could put the province on pace for a record-breaking year.
Canada is also on pace for a potentially monumental 2016 as first-quarter results across the country ($838 million) were the highest on record for a quarter, and almost double the amount during the same quarter in 2015. Clean technology accounted for the two largest deals so far this year. The CVCA first-quarter report also noted that private equity has slowed due to a decline in oil and gas revenues and that the IPO market for both private equity and venture capital is also down.
Kate Hiscox, chief executive officer and founder of Venzee, a cloud-based inventory management system for retailers, suppliers and manufacturers, told attendees at the event that since 2004 she has founded six startups, raising money for two of them.
“We find that Vancouver is very conservative,” Hiscox said. “We’ve never raised a dime in Vancouver, not one cent here. The issue is our valuation – everyone wants a really good deal here and a real sure thing. There’s not a lot of speculative appetite for seed or pre-revenue companies here.”
Hiscox sold her first e-commerce startup for $1.2 million.
“My first startup here nine years ago, people would say, ‘Oh you’re like that Google thing.’ It’s still very oil and gas and mining. It’s very old money for the most part and it is extremely conservative for the most part.”
Bill Tam, president and chief executive office for the BC Technology Industry Association (BCTIA), acknowledged the difficulties in raising capital but said he thinks 2016 will be Canada’s breakout year when it comes to venture capital.
“Where things get a little bit stickier is once you get past the angel investor side and you’re looking at seed plus or first-round venture investment; over the last few years that’s been quite a bit of a challenge as we’ve seen kind of a decline in the number of [venture capitalist firms] and the amount of money that’s been available locally.”
Last year the BCTIA launched its second HyperGrowth, a second-stage revenue accelerator program developed to help promising young tech companies take the next step. •