Venture Capital Market Warming Up in Canada


The venture capital business hasn’t exactly been setting the house on fire in Canada in recent years. The number of successful exits has been tiny, and some funds have all but dried up or stopped making new investments. According to a recent survey released by the Canadian Venture Capital & Private Equity Association, investment levels in 2009 were the lowest they’ve been in over a decade. That said, there have been some encouraging signs that money is starting to flow — or may soon begin to flow — into smaller-stage companies: A new $20 million investment fund called Mantella Venture Partners launched this week, and the Quebec government also announced that it’s selected three seed-capital venture funds to receive a total of C$100 million ($96.82 million) in provincial funding.

Mantella Venture Partners is a collaboration between Mantella Corp. — a family-owned real estate development firm based in Toronto — and Basecamp Labs, a technology fund run by Robin Axon and Duncan Hill. Both Axon and Hill were formerly at Vancouver-based Ventures West, and left to set up Basecamp Labs, which they describe as an “accelerator” for early-stage companies. The fund provides financing for startups, but also gets involved in hands-on support, including business development, marketing and team development. Hill says that he feels that the “more passive investment model that is common in Silicon Valley” works there because the Valley has a strong ecosystem of repeat entrepreneurs, but that a more hands-on approach works better in a market like Toronto, where most startups are run by first-timers.

Hill says that Mantella Venture Partners is looking to fund 10-15 companies, and will provide initial rounds of between C$100,000 and C$500,000 with an option to join additional rounds or top up those amounts. Among other opportunities, Mantella says it is interested in startups that are emerging from the technology community that has formed around BlackBerry developer Research in Motion (S rimm), which is based in Waterloo, Ontario. Basecamp’s current portfolio companies include Chango, which is developing a web-based advertising platform, and a mobile entertainment platform called PushLife (founded by a former RIM employee).

Despite the downturn in Canadian investment over the past few years, “innovation is still thriving,” Hill said in a statement. “With the venture market in such a state of flux, the timing could not be better for the launch of a new fund that is focused on both early-stage investing and providing the hands-on support entrepreneurs need.” Before he joined Ventures West as entrepreneur-in-residence, Hill was the founder and chief technology officer of Think Dynamics, a data center automation software company that was bought by IBM (s ibm) in May 2003. Axon worked at MD Robotics (formerly Spar Aerospace) and the Canadian Space Agency, where he helped prepare the Canadarm2 for installation onto the International Space Station.

The Quebec venture funds that are going to receive government financing include FounderFuel Ventures (which is focused on the information and communications technologies industry), AmorChem (focused on life sciences) and Cycle-C3E Capital (which will focus on green technologies). Quebec has agreed to provide a total of $100 million to the three funds through several provincial agencies, including $50 million from Investissement Québec, $33 million from the Solidarity Fund QFL and $17 million from a fund called FIER Partners. Each of the three new funds must also find a minimum of $8.25 million from the private sector in order to receive the government funding.

FounderFuel Ventures was created by the team behind a Montreal-based venture fund called Montreal Start-up, a group that includes entrepreneur and angel investor Austin Hill, the founder of Zero Knowledge Systems, now known as Radialpoint.

Related content from GigaOM Pro (sub req’d):

What The VC Industry Upheaval Means For Startups

Post and thumbnail photos courtesy of Flickr users Tico and rogiro.


Podium Calgary

Thanks for a great discussion and the article, of course. Just wanted to shout out that Calgary’s worming up too. Podium Funds is hosting a launch party at Flames Central on April 28th. The event is complimentary, so come on over! Register at the site here /launch-event. Thanks again!

Duncan Hill

@Greg Boutin You’ve clearly given this a lot of thought and I appreciate your views, but I think you may be taking a very homogeneous view of venture capital. Our view is that companies need different classes of investors, and different support, during different phases of their growth. During the pre-revenue, pre-market-fit phase, we believe our model works very well as evidenced by our current portfolio. We can be very capital efficient in our route to market traction. Good for the founder, and good for the business. Once market-fit is achieved and the company is scaling, bigger money may be required, and that may come from more traditional venture investors, at a much higher valuation thanks to our hard work shoulder to shoulder with the founders in the early phase. Once the company is in its groove, we aren’t needed in the same way anymore. We don’t feel we are re-inventing venture, and we’re not trying to scale up our model to put $250M to work. As Robin pointed out, we’re just modeling our business after some of the successful early stage company builders that pioneered venture capital. In any case, we’re happy to let our success over time speak for itself.

Greg Boutin

@Duncan Hill
I applaud the solidarity you are displaying for your partner and your undaunted ability to support him even through good ol’ rhetorical distortion of an opponent’s comments…

Indeed, I feel you are characterizing my thoughts not as they are, but as you’d like them to be. The moderate view you try to express differs significantly (and cleverly) from that of Robin, whose antagonistic comment, unlike mine, directly supported the notion that there is one good way to do Venture Capital – “hands-on investing” (his way, not surprisingly) – and that all the others are the key reason the industry is in crisis…
In that respect, I find it really quite ironical to be accused of a “very homogeneous view of VC”. But I wouldn’t expect you to disagree with Robin in a public forum. Have you ever?

This will be a side note looking like an unstable diggression to focused minds, but apparently loyalty is what matters most in business, something I have difficulty with when it involves having to embrace arguments just for the purposes of displaying loyalty and not biting the hands that feed me.

In any case, you just confirmed to me that this model of investing does not scale and that other models are needed if we are to truly support an innovation economy in Canada that’s more than a handful of startups. As far as I can see, that was the main question Robin and I were discussing. You did not really address the question of whether someone like you (I mean, mostly an investor) is better placed to support the operations of a startup than someone like me (mostly an operator), but I indeed will be happy to compare results over time for what it’s worth (to be statistically significant, as you know, we’d need more than a sample of two.)

As for the performance of your current portfolio, it is difficult for me to comment given that you just raised your fund and that, as far as I understand, one VC tradition you have not broken away with is the non-disclosure of financial results (let me know if you will disclose the results of all your investments and ROI of your fund, including management fees). But if this new VC model includes the ability of claiming success on a portfolio even before it’s been realized, then you certainly have got my attention.

In any case, I wish you good luck with your investments.

Lewis D.

I don’t mean to get involved in a discussion that has for main purpose to address who is better suited to support the operations of a startup; since I’m just a young ambitious entrepreneur with negligible experience, it would be pretentious of me to take side. However, I appreciate your input on the venture capital market in Canada. Also, allow me to share my thoughts on a side note.

From our perspective, as a company who is actively looking for funds for an early stage start-up relying on a process for webhosting -that we foresee with stronger reliability, reduced bandwidth cost, better pricing, higher ROI- we do not seek external “hands-on” forced upon us. Priding ourselves on a seldom deep solid knowledge of programming languages and a large amount of sweat equity, It’s important for us to choose the operator(s) of our liking as well as the VC(s) of our liking, assuming that a VC is principally limited on providing funds in exchange for some equity. We do not wish to mix apples and oranges.

In addition, I do not see how operators who “ generally do not accept equity payments for the opening review phase of a project” “understand the financial reality of early-stage ventures and their concurrent requirement for market excellence”. (quoting Greg Boutin website). We cannot realistically afford an operator at this stage of our business, when revenues are virtually nonexistent.

Greg Boutin

This is in response to Lewis D. below (somehow there is no “reply” button under the name of the last contributor to a thread, I’ not sure why).

Lewis, the question we were debating is whether the working model for VCs going forward requires a very hands-on approach and the bundling of money+sweat. My answer is that there is a room for it, but the traditional VC model will not disappear either.

In that context, your point that many start-ups don’t want this bundling seconds my opinion.

As for your detailed interpretation of my website, you are right that I should qualify the statement to apply to post-revenue ventures (which constitute the bulk of what I do as I do not have the benefit of having raised a fund), and you will note that in my new website, coming up this month, this statement was already removed.

However it strikes me as odd that programmers often will spend 6 months coding and then not invest a few days of someone’s time in figuring out how they will actually reach an audience and make money, pretending they don’t have the resources to do so. You don’t know how much I charge for those startups so I don’t understand how you can come to such a rapid judgment. Having said that, you’ll be glad to know I regularly help early-stage start-ups for equity.


the thread that keeps giving ;)

greg & lewis – my 2 cents from a usa based strategic vc technologist perspective…

i constantly meet w/ early startups seeking advice prior to seed or series a (normally to early for a strategic) & i’m glad to do it – allows me to understand the most emerging trends, provide valued recommendations to a startup that may be very appropriate to us somewhere down the line and increase networking both for the company and our group…

then once a company joins our portfolio, i tend to offer guidance as requested – some mature mgmt teams don’t need that much if any and some folks new to scaling a newco need a ton, i think the key is letting the company decide what they need and being prepared as an investor to jump in as requested from time to time (though not augmenting their operational staff – that’s going to far)…

Greg Boutin

@John Stokes

Hi John,

Yes I wouldn’t expect you to be against government co-funds, since as the article says you benefited from it.

I’m happy you agree on the need for better hands-on entrepreneurial support from specialized providers (and here I’ll have to add: not government-sponsored hubs with no performance management or public reporting… they’re hurting lots of start-ups out there and should stick to forum-like activities), I’m sure we can build on that. Although I’m also biased since it’s my job to provide such services ;)

Robin Axon

In response to your point about ‘hands on’ investing ‘not being able to scale’. This is exactly the kind of thinking that has put venture capital in the position it’s in today – trouble. Venture Capital investing and company building in general is not intended to be a factory-line production system. It is a slow and deliberate process of painstakingly building companies – one at at time. Take a read through the history of venture capital in the US and look at how small the funds were in the 60s and 70s (even time adjusted) and look at how few companies the successful funds were invested in at a time. Georges Doriot was no slouch. Our belief, as John Stokes rightly points out, is that by taking our time and supporting a few companies well, with our passion, our ecosystem of support and yes, our fund, we can build some fantastic companies and exits over the next few years and possibly even decades.

Greg Boutin

@Robin Axon
A quote, from Paul Graham: “We’re mass-producing the start-up.”

Is Paul Graham’s version of hands-on the same as yours? If so, he personally has less than a day per month to devote to each of his startup…

This is not your granddad industrial economy anymore, we have entered the age of the innovation economy. Unless you support dropping start-up investing all together as an asset class for institutional investors, and telling limited partners that their money should go instead to later-stage investments… capturing some of that money for start-up investing require organizations that are rapidly able to deploy large amounts of capital.

If former VCs don’t play that role anymore because they are individually involved in helping operate a much small number of companies like you propose, then I can guarantee you that some other professional finance manager role will be created to make the investment pool decisions that those VCs used to make. And you will become more of a consultant to them.

They certainly may let you directly handle a small pool of money to spend on supporting your handful of startups, but don’t fool yourself into thinking you’re creating a new VC model all together, and that you can scale the investment you manage beyond a few millions while devoting more than a few hours per week to each startup in your portfolio (I think you’ll agree that’s the minimum required to qualify for the “hands-on” label).

That is, unless you enroll other professionals to do the operational support role you were initially planning to do yourself. Or change your definition of “hands-on” to mean a few relevant introductions and some business model advice, incidentally the same contribution as traditional VCs.

John Stokes

@Greg Boutin

While I’m not sure I agree with all of your points I definitely agree that investors (alone) are not able to provide all the depth and scale of input that early stage companies and their founders need.

FounderFuel Ventures will be putting significant time into developing a supply of “talent” with whom the founders of it’s companies can collaborate !

Brent Holliday


These are tentative steps at best. A $20 million fund is an annual management fee for many US based funds. What is more worrisome (and you will hear much more about this in the coming weeks), is the lack of money raised by retail focused tax credit funds (also known as Labour-sponsored funds). I have spoken to fund managers who have used terms like “the worst” or “awful” to describe their fund raising efforts that finished March 1st. Love or hate ’em, the retail funds are a significant chunk of investment in Canada, and they appear to be lacking any dry powder.

Chrysalix and Yaletown are Western funds with new money and iNovia has plenty left to invest in Alberta and points west, but other than that things are pretty grim out here.

I would be interested in how the Eastern retail funds have done.


Mathew Ingram

Thanks, Brent — yes, others have mentioned the same concern about retail funds. I wonder if we are going to see a major shakeout occurring.

Greg Boutin

As someone who works with startups on both sides of the border (and ocean as well occasionally), the problem I see with VCs in Canada is not temporary but deeply structural: Canada has never had a thriving VC sector, and the reason for it is that most levels of governments simply don’t get it, launching on-off actions that don’t scale rather than working on setting up the right regulatory environment in place. We need tax credits for angels and VCs instead of co-investment funds, an extension of SR&ED to commercialization (see it as marketing R&D) activities, and the repel of section 116 which keeps US investors from looking north. At least the latter does seem to get some attention now:

As for a more hands-on model of investment as advocated by Hill & Axon, I’m all for it but again it doesn’t scale well, and in my experience VCs are not the best equipped to get involved in operations beyond high-level advice – so they need to work with others who do that for a living (hint). The belief that first time entrepreneurs need more hand-holding is true, but it doesn’t necessarily mean that this hand-holding should come from the investors themselves. And again the legal framework needs to evolve to build a better ecosystem. For example, consultants in Canada today, unlike employees, can’t even get paid in stock options without an immediate tax consequence… That’s a problem that lead people like me to focus further on business south of the border.

We are in the prehistory of

Gary Will

Outside of Quebec, it’s still very sad. Robin & Duncan will be happy to have $20M when others can’t raise anything, but it’s a small fund and nowhere near what companies need. Still, startups in the Waterloo area have been doing a great job of raising money. Unfortunately, most of it never gets disclosed.


Hey Mathew,

As someone who talks to startups and entrepreneurs in Toronto on a daily basis I can tell you that the #1 question I hear is “how do I find funding?” It’s a real challenge for local startups to get in front of VCs, and even harder to find Angels. But I’ve been encouraged by some of the investments and exits I’ve seen lately – CanPages buying GigPark is just one example. Funds like Mantella and the money earmarked by the Quebec government show me that the climate for startups might get a bit warmer in 2010.



agreed mathew & startups aren’t bad either, witness our recent investment in vancouver based hootsuite :)

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