Canadian Venture Capital Update from CFF

I attended the Canadian Financing Forum in Vancouver last week, to get a feel for the venture capital industry in Canada, and especially given the current environment. Although I had some pre-conceived notions of what might be going on, I wanted to see for myself and share my observations from their panels, and from talking individually with a few.

First of all, the opinions vary. Some VCs are downright pessimistic, regardless of what side of the border they’re from. The ones that are fully invested moreso, because they have companies that they have to perform triage on, to preserve capital to keep the better ones going. VCs with new funds (or at least money to invest) had a different point of view, in that it would be a good time to invest, especially in good early stage ones, because in the two years to get them going, things will have gotten better by then.

In fact for some, investing now with a team that has ‘conviction’ and good business sense seemed to be a strategic advantage, as many feel that VCs have over invested previously, breeding too many competitors. The slowdown to them was seen as a barrier to entry, and a good thing for their investments and would-be investments.

Software as a service was very big on the information technology side. I got the impression that if it wasn’t SaaS, that they weren’t interested. And not because of the technology, but because one thing they all did agree on was that we were in a ‘zero cap-ex’ environment. Companies are not spending on capital expenditures, whether it be software or equipment. And they are not interested unless the item is related to sales or a direct savings that could be realized very quickly.

Other areas that were a bright spot included investments in entertainment and in products that help displaced workers find jobs, or to kill time while off the job. As one VC commented, ‘its not that hard to see what happening, so just go meet those needs’. Easier said than done, but certainly worth noting.

According to the panels, angel investing will be hard to come by. Many angel investors are recovering from their losses in their portfolios, and don’t have capital to spare for private equity investments currently. As VCs have strange relationships with angels, I don’t know if this rings completely true, but it does sound plausible.

One last note, most of the U.S. based VCs seemed pre-occupied. My guess is they are saving their powder for U.S. investments, if they were investing at all. Not that surprising, given the retrenchment but anecdotal data in any case.