In the News...

Business in Vancouver
 - Jan 21, 2003

Timothy Renshaw

As U.S. investors look to Vancouver, so do tech companies seeking to capitalize on local talent

The American venture capital gold rush that began in late 1999 in Canada has slowed, but U.S. investors are still actively prospecting for nuggets north of the 49th parallel.

And investors in Vancouver and elsewhere in the province are increasingly joining forces with their U.S. counterparts to combine world-class management with B.C.'s high-tech talent and innovation.

That teamwork is producing some good local wins and keeping optimism high for the big-league aspirations of Vancouver entrepreneurs.

Venture capital typically picks up where angel investment leaves off, funding start-up businesses in the range of $500,000 or more. Venture capital across Canada was much harder to come by in 2002 than it was the year before. According to Macdonald & Associates' 2002 third-quarter venture capital industry overview, 183 Canadian companies secured $475 million. The totals were down markedly from 2001's third quarter, when 264 companies landed $884 million in investment funding.

But the good news, according to the Macdonald & Associates report, is that the trend is on the upswing. Third-quarter 2002 venture capital investment in Canada was up seven per cent over the previous quarter.

Also encouraging, said Canadian Venture Capital Association president Brad Ashley, was that interest by American venture capitalists in Canada continues to grow and extend into later-stage financing, even while U.S. investment in American companies has been dropping.

"They are investing throughout the investment spectrum now, and they are warming up to the fact that there are very good venture companies in Canada that are worthy of investment," Ashley said. "Foreign sources increased their investment from Q2 to Q3 by 13 per cent. That's a positive trend."

Equally positive for Vancouver-area entrepreneurs is an increase in cross-border partnerships that marry American world-class management resources with West Coast technical expertise.

A good example of that international entrepreneurial marriage trend is Inkra Networks Corp. It started in Fremont, California in May 2000 with a staff of two. By the end of 2002 it had 97 staff, a third of whom are based in Burnaby.

Founder Dave Roberts said the company, which consolidates the diverse functions of complex data centres, initially looked north for IT talent because the Silicon Valley talent pool was close to being tapped out.

Vancouver, on the other hand, offered plenty of available talent. It also offered some economic advantages, not the least of which was a beneficial exchange rate.

Greenstone Venture Partners' Livia Mahler said the Inkra deal underscores for American venture capitalists the quality of investment opportunities available in Canada.

Americans, she said, have been increasingly looking beyond their own immediate investment universe, especially on the technology front. In Canada, they're finding good opportunities priced much lower than those in the United States.

Factors making Vancouver an attractive venture capital environment include the lower costs of everything from engineers to administration, research and development tax breaks, and the quality of technical talent available.

Mahler, whose company was instrumental in linking the American Inkra founders with their Lower Mainland technical talent, said U.S. venture capital is increasingly being directed into start-up opportunities and cross-border partnerships.

But she pointed out that the low Canadian dollar also works against local companies searching North American for the management needed to plug them into the international marketplace.

Still, Mahler said the dollar-to-talent ratio in Canada is hard to match anywhere in the world.

"I think Canada is up and coming on the radar screen of U.S." She jokes that three or four years ago American venture capitalists often didn't even know that Canada was in North America.

For Inkra's Roberts, the company's Burnaby office, which has expanded from seven staff in 2000 to 35 in 2002, has paid big dividends. For one thing, it's in the same time zone as the head office and a mere two-hour direct flight away.