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Why Canadian venture capital is the right bet for investors

Why Canadian venture capital is the right bet for investors

Posted by PanamericanWorld on January 10, 2017

A strategic co-investor for OMERS Venturesrecently asked why on earth they should invest in Canadian venture capital when, on average, U.S. venture capital has provided better returns. Why Canada and why now?

The question is not uncommon. Every Canadian VC knows that institutional investors (in Canada, the United States or elsewhere) do not have a burning need to increase their exposure to the Canadian venture capital asset class.

The historical venture returns in Canada support their skepticism. Over the last 10 years, the median Canadian VC firm has delivered a 4 percent internal rate-of-return (IRR) versus comparable U.S. returns at 12 percent, and the five-year numbers are 11 percent and 20 percent, respectively.

The gap is closing though, with three-year IRRs at 21 percent versus 27 percent.

And the good news is that systemic factors are surfacing that should lead to a permanent and self-sustaining ecosystem in Canada with comparable long-term returns. Here’s why:

1. Canadian entrepreneurs staying home

I don’t believe there has ever been a greater number of individuals who have started and built venture-backed businesses, generated returns for their investors (via an IPO or sale to a big-name tech incumbent), remained with the business in a senior role, and are now back again building new startups here in Canada.

We have seven such companies in our own OMERS Ventures portfolio, and there are several others throughout the country. This time around, these repeat entrepreneurs want to go even bigger, faster and farther.

Beyond that though, an increasing number of individuals consider it desirable to join an existing startup or even form their own company. Canadian tech students and recent graduates consider local startups to be highly desirable places to work. Those who would once have sought work in larger enterprises, or made their way to Silicon Valley, now consider home just as interesting (and more financially rewarding).

The lifeblood of the startup world is the entrepreneur and it’s great to see the increasing activity in this area.

2. Local accelerators and incubators

To succeed, venture-backed startups need new and differentiated technologies and approaches.

A source of these technologies is often university and government labs. Stanford is well understood to be the seed of many Silicon Valley successes, and the numerous academia-affiliated commercialization engines across Canada have smoothed the way for valuable intellectual property to be unlocked from our world-class universities.

There is nothing more exciting as an early-stage VC than to interact with the people and companies in CommunitechCDLDMZMaRS Discovery DistrictOneElevenand all the other accelerators and incubators that are helping young companies get off-the-ground and grow to the next level.

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