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It’s A “Dry” Cold… (Part 2)

Posted on Saturday, Mar 17th 2007

By Calvin McElroy, Guest Author

[Second part of Cal’s review of the Canadian Venture Finance scene]

More soundbytes from the gathering:

• Ben Kaak, National Technology Practice Leader, PricewaterhouseCooopers LLP,

In summarizing PWCs survey of emerging Canadian software companies – “95% of Canadian startups expect to be acquired by a US company, rather than exit through IPO – they compete with US venture-backed firms with typically twice the R&D staff and four times the sales and marketing staff – after factoring in market size there are twice as many VC deals in the US, and the deal size is 2.5 times larger.”

• Dr. Paul Kedrosky, Executive Director, William J. von Liebig Center, and venture investor with Ventures West

From his perspective as a venture investor, author and respected speaker on technology finance and venture capital – “The early stage VC funding model is broken in Canada, and is getting worse with the shift to smaller Web 2.0 deals – US investors often struggle with cross-border tax laws and costly legal acrobatics, required to support Canadian companies.”

There is at least one bright light on the Canadian venture finance scene – The Toronto Venture Exchange. At the CVF, Kevin Cowan, Senior Vice-President of TSX gave a fascinating presentation on the emergence of the “public” venture capital market in general, and the TSX Venture Exchange in particular – a hotbed of emerging-stage Canadian companies with market capitalizations of $1 to $50 million. While still requiring oversight by public securities commissions, the TSX Venture Exchange with a “SOX-lite” regulatory environment, its Capital Pool Company (CPC) model, and a streamlined “going public” process has started to fill the emerging-stage, VC funding gap in Canada.

The early numbers are impressive – 1700 CPC listings since program inception, represent 10% of all new public stock listings in Canada – 85% have completed a merger transaction with a startup venture – providing $1 – 5 million in venture funding (historically the VC Series A sweet spot) – and 22% of all current listings on the senior Toronto Stock Exchange (TSE) are graduates of the CPC program. It is interesting to note that TSE is now second, only to NASDAQ, in the number of publicly-traded technology stocks.

Even more telling is the growth in market capitalization of the TSX Venture Exchange, from $3 billion in 2002 to $33 billion in 2006. The TSX and CPC program provide cost-effective access to public capital, a follow-on financing vehicle, a currency for growth through M&A or rollups, liquidity for founders and investors alike, “public” governance rules to protect minor shareholders (Angel investors love this), and a reasonable analyst following for hot new companies. The CPC program is fast becoming a serious alternative to private Venture Capital for those companies that have survived the challenging startup stage (with family and Angel funding) and emerged with real products, customers and revenue. TSX has even started a boot camp and mentorship program to provide entrepreneurs a comprehensive training program in how to make the transition to a publicly traded marketplace.

In sharp contrast to the VC industry pundits was the enthusiasm and positive energy of the entrepreneurs – I was particularly impressed with pitches from promising startups including;,,, and It is great to see Canadian companies leading the charge on promising Web 2.0, wireless and new media ventures.

Leonard Brody, serial entrepreneur, author, business strategist, and now CEO of the media startup – gave a great keynote speach on Canada’s thriving entrepreneurial culture. According to Brody, 97% of Canadian businesses have less than 20 employees, and 20% of Canadians are self-employed versus 10% in the US. As well, Canada currently has the lowest unemployment, lowest debt and best economic engine of any G8 nation, and is consistently ranked in the top 10 global centers of entrepreneurship by Global Entrepreneurship Monitor (GEM)

So the entrepreneurial spirit is alive and well in Canada – in high tech as well as other industries – and while the weather can be brutal at times… optimistic Canadians will often tell you – it’s a dry cold.

This segment is part 2 in the series : It's A "Dry" Cold...
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