The global trends in the ′Venture Capital 2007 Survey′ – Venture.pdfVIP

Venture Capital The global trends in the ‘Venture Capital 2007 Survey’ – Venture capital industry backgrounder December 2007 Venture capital in Canada: a broken ecosystem Converting entrepreneurial ideas into viable, thriving companies requires a succession of funding stages. Each round of investment builds on the next as companies prove their capacity to provide a good return on investment to attract later phases of funding. To be successful, many Canadian technology companies require a healthy “funding ecosystem” that enables them to grow through successive rounds of financing. Similar to young hockey players who dream of making it to the “big leagues”, but who must distinguish themselves at each level of minor hockey to advance, aspiring companies depend on each round of capital investment to reach their full potential, which often culminates with an initial public offering (IPO) or other exit event. For further details on this ecosystem, see the diagram on the next page. However, the venture capital (VC) funding ecosystem in Canada has been ailing over the past few years due to various systemic problems. Quite simply, the system is broken, meaning that many aspiring Canadian companies are thwarted at critical stages of growth. Others are forced to leave Canada altogether in search of funding. Fixing the various problems will require the combined efforts of Canadian governments, lawmakers and the financial industry to reinvigorate the health of the Canadian VC industry. The Canadian VC funding ecosystem The VC process is a fundraising technique for companies willing to sell equity in their company in return for money to grow or expand their business. Venture capital is invested across phases — from early seed self-funding through successive rounds of institutional VC and syndicated financing, and perhaps, even to an IPO or acquisition. However, according to Canada’s Venture Capital Private Equity Association (CVCA)