Entrepreneurs have been finding more difficult to raise financing. Even though the stock market has recorded a huge recovery, the investors are still skittish in investing. The problem is more acute for early stage companies started by Canadian youth, who do not have a prior entrepreneurial experience.
The Canadian Venture Capital Association recently has reported very grim statistics on the state of financing. Overall level of financing in 2009 slipped by 27% from previous year even though the stock market in Canada went up ___%. The Canadian entrepreneurs received 40 percent less amount per venture than their US counterparts.
While the US is undergoing a much severe recession, The US venture capitalists invested a total of US$17.7 billion with American entrepreneurs in 2009. In comparison Canadian venture capitalists merely invested a total of CA$703 million in 2009. This clearly demonstrated the financing difficulties faced by our entrepreneurs.
Ontario was among the worst hit province in terms of funding. The total financing in Ontario declined by 50% last year. Ontario now accounts for only 28% of all disbursements nationwide, which is its lowest market share since the early 1990s.
To over come this funding gap, TiE Toronto has organized TiEQuest business venture competition. The competition connects entrepreneurs with investors so as to improve the probability of financing. TiEQuest offers over $150,000 in prizes to the winners. In addition the top teams also have an opportunity to win up to $1,000,000 investment from sponsors. In addition for the first time this year, TiEQuest is offering special prizes to the best intellectual property, best clean tech venture, best medical assisted technology venture and best student entrepreneur.
Over 200 entrepreneurs are contesting in TiEQuest 2010. They include existing and emerging entrepreneurs, patent holders, university students. Competing in TiEQuest 2010 are 19 PhDs, 35 MBAs, 15 engineers, 3 lawyers, 3 doctors and a number of other professionals. 49 students are also participating in the competition this year. The contests are connected with mentors who are successful entrepreneurs and business leaders, to help polish their business ideas. The contests are making different submissions and presentations to panel of judges comprising venture capitalists, angel investors and fund managers.
Technology ventures depend on venture financing considerably. IT companies including software and semi conductors accounted for over half of the total financing last year. 23% of the ventures competing in TiEQuest this year are technology ventures.
Levels of VC activity in biopharmaceuticals and other life sciences sectors decreased 41% in 2009. This industry has consistently done well in TiEQuest and account for 22% of all contestants this year.
The energy and environmental-technology ventures accounted for only 10% of total activity in 2009. The McGuinty government has given tremendous focus to this sector with many new regulations to promote renewable energy as well as missions aboard to promote Canadian technology. TiEQuest has seen huge increase in interest in this industry accounting for 16% of all entrepreneurs.
TiEQuest has over 25 success stories, where its alumni have been able to obtain financing. In addition, the contestants benefit from mentoring advice from successful entrepreneurs, opportunities of pitching their venture to ventures capitalists, angel investors and fund managers.
Dave Kroetsch of Aeryon Labs, winner of TiEQuest 2009 says, “The external validation we received from TiEQuest has gone a long in helping us raising financing and develop our venture.”
The Canadian government has finally realized to the handicap our entrepreneurs are facing in raising financing. The recent budge proposal have made investments by foreigners in Canadian venture a bit more tax efficient. The new provision remove the onerous hurdles that have kept foreign venture capital funds from investing in Canada. This should provide Canadian entrepreneurs access to billions of dollars that are available in the US
A Deloitte study in 2007 found American investors considered Canada the worst place to invest in the developed world because they had to pay a 25-per-cent tax on any capital gains made to these foreign investors.
TiE has strong links to the US entrepreneurial and investment community. The winners of TiEQuest will be taken to the Silicon Valley and to Boston to help them access financing. Many entrepreneurs have in the past found that Americans were “kicking the tires” but kept their wallets shut. TiEQuest hopes to change that for our entrepreneurs.
Author: Suresh Madan is President of TiE Toronto, a non-profit organization engaged in fostering entrepreneurship. Suresh is the Executive Vice President and Portfolio Manager with Excalibur Capital Management Inc. He is frequently invited to speak on issues relating to current economic trends, financing for early stage companies and alternative public strategies.
