2008—A Venture Drought

It seems that, according to the CVCA, 2008 was the worst year for venture activity in Canada since 1996. This comes as no surprise to anyone involved with small business and startups in the GWN.

Reviewing 2008 investments

In a recent report issued by the CVCA they commented on just how negative an effect this has on the Canadian market;

These statistics demonstrate the declining availability of capital in the venture capital industry, which has real repercussions for Canada’s ability to drive innovation and to develop the knowledge-based economy we need to compete effectively on the global stage,” said Gregory Smith, President of the CVCA and President of Macquarie Capital Funds Canada Ltd. “The availability of VC dollars has been eroding for years, a trend that has been exacerbated by the sharp economic downturn. We are failing to capitalize on the potential of our entrepreneurs and small growth companies, which have traditionally been vital drivers of jobs and prosperity for Canadians.

Change is required

The CVCA has create a four point list of recommendations that would help improve the potential for companies needing venture money. The recommendations include;

  1. improving the Scientific Research and Experimental Development (SR&ED) tax credit program;
  2. setting up a third-party managed fund of funds to invest in promising Canadian companies;
  3. enabling greater use of government procurement/offsets to encourage domestic and foreign investment; and
  4. creating a tax incentive for Canadian companies to invest in Canadian VC funds.

We’ve worked with many Canadian companies, some of whom have received VC funding and some who have remained entirely friends and family funded. In both cases these companies struggle to make payroll, defer international expansion due to costs, and generally are very frugal. Life is not easy for a startup and lack of VC funding will drive many of these businesses into an premature death.

Failure is not an option

Venture capital is a key driver of job creation, economic growth, new technologies and innovation in Canada

Gregory Smith, President of the CVCA

We had commented on this situation earlier this year, but with the CVCA’s current historical analysis we continue to be concerned about Canadian competitiveness in the future. If we are not growing smart, aggressive companies who can compete in a global marketplace, we will fall behind.

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