Borderless Investments: The Top US Venture Capitalists Investing in Canadian Startups

This article is the 3rd in a series that highlights how to properly go about funding and growing your startup.

In evaluating US VCs, it’s important to identify whether they hold any Canadian investments, as many firms have criteria about the geographic areas in which they will invest. Chances are that if an established VC has not previously invested in a Canadian company, they are not likely to do so in the near future.

It’s the same reason why most Canadian VCs do not invest in England. It’s just not their focus. Keep this in mind when beginning your search.

This infographic highlights the top 10 US firms investing in Canadian technology companies. It helps to dig down a bit and examine what drives these firms to invest north of the border.

For Bridgescale Partners, its 13% Canadian portfolio can be attributed to Canadian and C100 charter member, Rob Chaplinsky. Rob recognizes the recent proliferation of new ventures in Canada over the past few years and feels the startup landscape is growing into something “incredible.”

This growth brings Bridgescale to Toronto and Waterloo frequently, to chat with companies and keep its finger on the startup pulse. We asked Rob why other US VCs don’t frequent Toronto as they do New York or even Boston. He feels proximity is the main issue, recognizing that a last-minute flight from the Valley to Toronto averages about $1,400.

Location-wise, Vancouver has a significant advantage over Toronto as it is closer to the Valley. We know of at least one US VC intending to establish a Vancouver office for this exact reason.

Having a Canadian on the team also drives Newbury Ventures to invest in Canada. Partner Ossama Hassanein is a University of British Columbia graduate and a current C100 board member. At Greylock Partners, former partner Charles Chi is a Carleton University alumnus, as is Y Combinator partner Trevor Blackwell.

Whether Canadians at US VC firms intentionally evaluate Canadian opportunities, or stumble across them during visits home, it’s obvious that their presence significantly affects their firm’s investment in Canada.

Some VC shops like Bessemer Venture Partners and Intel Capital have a truly global investment strategy. Bessemer invests nearly 25% of its funds outside of the US; for Intel, this percentage is closer to 50%.

Accelerators such as 500 Startups and Y Combinator attract large numbers of early-stage Canadian companies looking to be part of an elite accelerator cohort. 500 Startups visits Canada often to promote its program, with Dave McClure and Paul Singh frequently appearing at events, meeting with teams and hosting talks.

NEA and Sequoia Capital are two of the most prominent VC firms in the world. They are pushed to invest around the globe in order to deploy all their capital. Moreover, NEA has invested in syndicate with several Canadian VCs, including OMERS and Relay Ventures. NEA stays abreast of promising investment opportunities north of the border by exchanging deal flow between interested parties, without actually setting up a team on the ground.

Some observers feel US investor activity in Canada has generally been slow due to a former Canadian tax rule known as Section 116, which made it very expensive and time-consuming for US VCs to invest in Canada. In 2010, that rule was reformed so that it no longer posed an impediment to foreign VCs seeking to invest in Canadian companies.

However, as Stephen Hurwitz explains, “the Section 116 reform hasn’t necessarily caused a flood of US investors coming north of the border, as many have been distracted by their struggles in fundraising and in keeping their late-stage portfolio companies alive during a weak IPO and M&A market. But, as the markets come back, the Section 116 reform will have a favourable impact on Canada’s startup community.”

Also spurring investors to come north is the new Canadian startup visa, which entices firms to explore setting up shop in Toronto or Vancouver. The startup visa’s purpose is to attract overseas opportunities here, given getting a company into the US is a difficult process.

Hurwitz, who has met with various US VCs investing in Canada, finds many of them love doing Canadian deals. “What they see is a combination of fabulous technology, high-quality and lower priced tech-talent, less competition for deals, and better pricing.”

Their challenge, however, often revolves around finding the right management team. As Chaplinsky tells us, “There are not a lot of people who can scale $10 million revenue companies. This type of talent isn’t at a Blackberry or even at a Google. It’s about finding very good managers, very good strategic planners and very good operations people. Unfortunately, in Canada today, these people are very rare.”

This content was originally published on MaRS.