BDC loans to entrepreneurs jump, but ‘we still have a lot of work to do’
Global rivals surpass Canada in support for startups despite improved funding
The Business Development Bank of Canada lent $6.6 billion to entrepreneurs last year, but some point out that access to funding continues to lag behind global competitors, particularly the United States.
The Crown corporation saw its outflows rise by 37 per cent in the fiscal year that ended March 31, bringing the total value of its portfolio to $29 billion. The bank now has a record 49,000 clients, up 17 per cent from 2016.
“I think we are in a situation where the access to financing for entrepreneurs is better than it has been,” BDC chief executive Michael Denham said in an interview.
BDC has more than $1 billion in venture capital invested in 700 tech businesses, although its venture capital investments in 2017 dropped to $160.8 million, down from $253.1 million in 2016.
In all, the bank reported a 2017 profit of $464.8 million, which it says will be cycled back into future investments and operations.
Jesse Rodgers, a former entrepreneur who now runs Halifaxbased Volta Labs, agrees that more money is now available to entrepreneurs.
“Everybody gets really excited right now because it’s a heck of a lot better than it was,” he said.
Rodgers was a co-founder of TribeHR, which NetSuite acquired four years ago. He’s been involved in startup organizations in Waterloo and Toronto, and is currently CEO of Volta Labs, which supports startups with programming, mentorship, and subsidized office space.
In four years, 45 Volta companies have raised roughly $50 million. Rodgers says that’s a sign companies are more easily able to raise money, even compared to when he started his company.
“Across the board there’s definite improvement but … we still have a lot of work do to,” he said.
He noted that, generally, American venture-path companies are better funded than similar companies in Toronto. And Toronto companies have more funding than their counterparts in Atlantic Canada.
Canadian VC firms are not big enough, Rodgers added, meaning they cannot invest the dollar amounts needed. “If they had more capital in their funds, they could make more and larger bets.”
In June, the Canadian Venture Capital Association (CVCA) said $905 million was invested in 98 deals in the first quarter of 2017, making it the second-best quarter since 2013. According to CVCA, the average venture capital deal rose to $9.2 million in the quarter. Between 2013 and 2016, the average venture deal was $5 million.
In 2016, Canadian VC investment totalled $3.2 billion, up 41 per cent from 2015, and marking the highest level since 2001.
Venture figures from the United States tell a different story. According to the U.S. National Venture Capital Association, more than 7,750 venture-backed companies received $69.1 billion in 2016.
To help narrow that enormous gap, Rodgers would like to see more participation by traditional Canadian investors. He notes that OMERS, the pension plan for Ontario’s municipal employees, is perhaps the only domestic pension plan with a venture capital arm. Launched in 2011, OMERS Ventures has $800 million in assets under management.
Rodgers says traditional investors should dedicate a small portion of their investments to higher risk categories, such as venture capital, as is often the case in the United States. According to Bloomberg, the average American university endowment invests five per cent of its assets in venture.
“We’re not yet at a globally competitive level,” Rodgers said. “It’s still a tough choice for a founder to not go to the U.S. and get funding and build a company there.”
In July, Dhirendra Shukla secured an arrangement he believes will better connect entrepreneurs studying at the University of New Brunswick with American money.
Shukla, director of UNB’s J. Herbert Smith Centre for Technology Management and Entrepreneurship, has partnered with the Canadian Technology Accelerator in Denver, Colo. The accelerator attempts to help Canadian cleantech companies expand into the U.S.
Shukla said the partnership will provide access to American investors, as well as to U.S. research facilities.
“We have to form these strategic alliances to enable our startups to get access to deep knowledge, technology know-how, and access to funders that understand the (cleantech) space,” he said.
“We have come a long way ... but I think a deeper commitment is needed.”
Everybody gets really excited right now because it’s a heck of a lot better than it was. JESSE RODGERS, Volta Labs