Other people’s money
Carol Leaman recently raised $3.3-million for her Waterloo-based startup, Axonify.
The funding round involved two U.S. investors: Harmony Partners, a venture capital firm, and education giant Kaplan.
Ms. Leaman, who sold a previous company, Post Rank, to Google in 2011, had the choice of adding a Canadian investor to the round but declined.
It was a decision based on experience. “U.S. investors are much more aggressive in actively helping you accelerate your growth — not just sitting back and waiting for a quarterly board meeting,” she said in a recent interview.
“My U.S. VCs are actively working for me and thinking about me everyday.”
Canadian venture capitalists are improving, Ms. Leaman noted. However, she said her U.S. investors continue to push further, frequently introducing her to potential contacts and customers.
“They are constantly thinking about their portfolio companies and how they can tangibly help. I did not have that with Canadian VCs,” she said.
“If you can go to the U.S. and get money, my recommendation is do it.”
Her experience raises a key question for Canadian entrepreneurs: Is U.S. venture capital more likely to help your company succeed?
A recent funding report from Toronto-based MaRS, an innovation centre, certainly leaves that impression. The report, titled Borderless Investments, highlights the success rate of Canadian companies backed by U.S. venture capitalists.
In 2012, 23 venturebacked Canadian tech companies were acquired. Nearly 60% of them had received U.S. venture capital. “This reinforces the need for Canadian companies to look to the U.S. for late-stage financing,” report author Neha Khera said.
For Code Cubitt, seeking U.S. funding makes sense for one simple reason: “The reality is that there are 20-times more venture capital dollars spent there than here. On a per-capita basis, there’s more than twice as much,” he said.
Mr. Cubitt spent more than 10 years in Silicon Valley working for investment firms such as Ciena Ventures and Motorola Ventures.
Back in Canada, he is now managing director of Mistral Venture Partners, a $35-million venture fund based in Ottawa. Mistral Venture, the first fund to set up shop in Ottawa in 10 years, has generated front-page news. Yet it’s tiny compared with the slew of multi-million and multi-billion dollar funds in the United States.
“There’s just so much more money there,” Mr. Cubitt said. “Why not take advantage of it?”
Chris Arsenault, managing partner of Montreal-based iNovia Capital, argues that U.S. cash is not a prerequisite for success. He points to Radian6, the New Brunswick social media monitoring company purchased by Salesforce.com for $326-million. “You need to have connected investors, wherever those investors are,” he said.
“You go where the key relationships are.”
David Quail’s newest venture, Zenlike.me, is straddling the Canada-U.S. border, reaping the benefits of both countries.
The Canadian entrepreneur has lived in Silicon Valley for three years.
There is “no better place in the world” for accessing capital and marketing and business development expertise, he said.
“The downside is it’s a pretty terrible place to recruit and build a technology team,” Mr. Quail added.
He has found that the average Silicon Valley software developer earns as much as $180,000 a year and are quick to jump to another company, or start their own.
For that reason, Mr. Quail based his engineering team in Edmonton, where developers earn half of what Silicon Valley counterparts do.
“And they’re more loyal,” he added.
However, Mr. Quail plans to remain in Silcon Valley, because so much money “flows” between investors and start-ups.
“And it tends to flow within your close circle,” he said.
“It’s the old adage: business is largely who you know. It’s incestuous… but you have to play in that game.”