I’ve said this elsewhere, but it’s worth saying again. The reason that Canadian entrepreneurs are making incremental innovations versus audacious bets is that they aren’t getting any support from investors. Entrepreneurs will build whatever business is doable with the resources at hand. If VC’s want a return they have to stop being afraid of making real bets.

Very nice post Amie. I’m certainly biased given my work as management consulting, but it pains me to see all those technology-enabled businesses, as you put it, suffer because they haven’t invested soon enough in getting to revenues sooner. Figuring out a business model should be the first thing founders do, instead of toying around with DIY marketing in a “build it and they will come” mentality. I feel their pain but at least the crisis is going to force many of the techies to figure out market realities and get some pro on board. Marketing is just like mechanical engineering, if you’ve never done it before, stop wasting your time and get specialists to the rescue.

Amie,
Thanks for bravely posting this. Finding ways to capitalize innovative knowledge-based startups is a key ingredient to an bright future for the Canadian economy, so this topic needs to interest many more people than just founders.

At Verdexus, we’re huge proponents of the Venture 2.0 model of building companies for less capital, having shifted to this playbook long before our current credit crunch. Now, that model has moved from merely compelling to absolutely essential.

That being said, new startups which, by running on fumes, do manage to survive these dire economic times often find that small, selective growth investments can lead to huge returns. Fewer competitors mean that being counter-cyclical can sometimes be a plus.

Randall

[...] Canada, the VC ghost town Once upon a time, all I wanted to do with myself was work in VC. After spending time in Ottawa last week at the Ottawa Venture Technology Summit, in the midst of our current financial state, I am glad that I chose a different path. (tags: vc venturecapital angel) [...]

Hi Amie,

It is certainly an interesting and difficult climate for entrepreneurs right now. You are also correct – cash is tight for existing businesses and for VCs. Many VCs are saving money to support existing investments and ensuring that they remain flush with cash. It’s survival mode right now. If you didn’t read Sequoia’s “R.I.P. Good Times” presentation, I suggest you have a read … granted it’s a few months old now.

All Canadian VCs are not dry, however. If there are any businesses developing software applications for financial services or mobile (smartphones), try approaching our funds: RBC Venture Partners and the BlackBerry Partners Fund. We have cash and are always looking for good investment opportunities.

Good luck and all the best to all you entrepreneurs in 2009!

Josh

Hi Amie,
Good article and I am glad that MARS included it in a recent email.
As a Toronto based start up, we share the pain.

Josh – if you are reading the comments, please check AskKinjo.com. We are in the mobile space and certainly interested to find more about RBC Venture and Blackberry Partners fund.

Overall, I think that the Canadian government could and should be much more active and generous in promoting entrepreneurship and innovation. The Canadian government has to realize that investing in start-ups is not wasteful. The money is spent on R&D in Canada, promotion in Canada, developing skills in Canada. In short, the money stays and every dollar moves several times through the industry, generate IP and skills. The talent which is retained in Canada and evolve will create wealth of knowledge and a feeling that “yes, we can” to be shared by all. And most of all, a sense that Canadian can innovate and develop start-ups into viable business. For example, when Nortel was growing (the good old days) they evolved fantastic R&D skills and huge engineering community. Same for RIM and few others, but it may be easier to build 100 smaller success story than the mega-success story.
Best of luck to all,
Yoram

Securing venture capital for anything other than extraction (mining) operations has always been more challenging in Canada than the US. Differences in bankruptcy laws; however, make it easier for small Canadian firms to incur bank debt. Outside recessionary periods it is easier to raise equity in the US and easier to raise debt in Canada. Debt involves banks and banks lend against assets and revenue streams. The Canadian ethos definitely favours startups that can generate some revenue from their inception. Thus the Canadian technology entrepreneur is under much more pressure to develop commercial applications driven by the needs of specific market segments or customers. Some of your earliest research needs to be market research. Luckily the world is full of technical problems that need solving. The advantage of a startup business model that includes some revenue generation is that you have some control over the length of your runway. I expect 2009 to be the year that a lot of good but small public US biotech firms will be purchased for a song by cash rich, pipeline poor Big Pharma when the little firm’s runways have run out.