This is an incredibly positive step since it frees capital to flow to early stage Canadian startups from US venture capitalists and individual investors.  That’s the win.  Previously, for US VCs all the lawyering and paperwork made doing a deal in Canada burdensome if not downright impossible since the filing requirements extended to the original investors into the VC fund and can number in the hundreds or thousands. Not to mention anything about funds of funds where the complexity compounds. This made the deal count low and pushed the deal size up, way up to a point where most US VCs only considered investing in a much later stage, lower risk and higher placement expansion round. This of course ads insult to injury since most Canadian “early stage” VCs have the risk profile of a pensioner.

Early stage investments in Canadian startups have been coming from from government grants and from individual angels and a growing number or organized angel networks. These groups have been carrying the load for what would be/could be an institutional investment industry here.  I recently watched companies pitch an angel network for million dollar rounds and was left wondering where the VCs were?

The audio for the webinar is available as well.

I have to admit that the victory is somewhat bittersweet.  Sweet because it is progress, bitter because it took so long to fix and there is so much more to be done.  I hope with this one step at least more young companies find the funding they need which will inevitably grow the ecosystem. Canada needs many more startups, more learning and evolution.  The best way I can imagine to learn it is to do it. Hopefully this will help.

I’m talking to some VC friends in Boston this week and I’ll hopefully get their take.  I’ll update when I have.

I think Rick’s fundamentals are right but the mechanism is wrong.  Scrape together a few bucks to squander on training is a cynics take.   To me what I noticed immediately after moving back to Canada is simply the lack of game.  We don’t need special consideration we need more action. Problem is to get more action you need more VCs playing and more LPs willing to invest.    For cultural, population and scale reasons Canada can’t rely completely on domestic investment – and shouldn’t want to either.  It especially shouldn’t wait around for a few tens of millions to be handed down from the government in ham handed way as the primary LPs to local VC.  Completely wrong headed as well.

What Canada needs more than anything is more capital to work with.  We’re a resource rich country – in more ways than minerals and lumber.  I mean in skilled and talented people.  To scale and deepen the level of skill and experience you need to do it.  You do it by funding more companies and iterating more often.  We don’t have enough oxygen in Canada to do this and will always be chronically underfunding this critical emerging part of our economy.

Stephen Hurwitz recently articulated this much better than I and to a level of detail I’ve been craving ever since moving back from Boston and wondering what the hell was going on with Section 116.  His article titled: Reforming Section 116 – Key to Opening Canadian Borders to Foreign Venture Capital lays out the case:

The notion that Canada makes it simple for investment to flow outward but not encourage the other direction is in my opinion the single largest problem facing Canadian start-up founders (or would-be founders that fail to find investment).

By simply alleviating the administrivia surrounding this issue we can unlock the potential of billions of dollars of investment that is otherwise squandered or leaves for other more favorable places.  In this area I know of what a speak.  I’ve made that choice and met tons of fellow Canadians that did as well.

I’d place  abet that Section 116 is not a rational, thought out position with a purpose but rather a sloppy oversight that has yet to be corrected by people with interests in seeing entrepreneurs flourish in Canada.   If there was one thing we could do, wave a wand and change a single thing this would get my vote.

Here are a few points that stood out for me:

• “Our economy is shifting away from jobs based largely on physical skills or repetitive tasks to ones that require analytical skills and judgment.”

• “…there is considerable pressure on governments to protect the past and to undertake bailouts – to preserve what we have during this time of uncertainty. But this protective approach can only forestall the inevitable. There is a better way”

• “This must be more than a government effort. … Businesses should make these choices for their own benefit, not in response to government directives.”

• “The evidence shows we rank well behind a set of peer regions in North America and  behind the best global peers in economic output per person – perhaps the single best measure of our overall economic prosperity. And in recent decades, we have seen our advantage erode from near parity with these global leaders”

• “Ontario is relatively prosperous; but our assessment is that we have settled for a level of prosperity that sells our province short. While it is not comforting to admit, we have in fact lost ground against the very best economies over the past twenty years…our citizens’ creative skills are less developed than those of the world’s leading jurisdictions”

Lots of this report is motherhood and apple pie, and sounds very unsurprising coming from Richard Florida who’s creative class evangelism is not new – Revenge of the Squelchers.  The sections “Raise the Creativity Content of Occupations” and “Capturing Ontario’s Diversity Advantage” highlight some critical insights: Ontario needs to more closely align its values with creative values.  There are no programs, incentives, tax reform or anything else that will overcome overly conservative and stodgy social attitudes.

“A place like Pittsburgh or Rochester can have substantial  technology, but will fail to grow if talent leaves, and it lacks the openness and tolerance to attract new people.”

Ontario needs to be a magnet for attracting talent not a place young talented creatives see in their rear view mirror on their way to more attractive places.  Address the brain drain problem!

When I was in Engineering school in Ontario during the early 90’s there was plenty of talk about the declining status of the big three – as a 2nd year co-op student I clearly remember thinking that I wasn’t interested in going down on that sinking ship.  Over the years I was confused again watching the big 3 churn out crap year after year with impunity.  Over nearly 2 decades, whenever I’d get unlucky enough to land myself in a new rental car made buy the big 3 I was confused some more: who would willingly produce this crap?  And who’s buying it?  Why?

This is nothing new.  Its been going on for decades, literally.  Over the years our provincial and regional governments have leveraged the economic stability of our industrial sector by making deals with the big 3 to produce more and more of this crap in Ontario.  Every plant is seen as some sort of economic win when its really as healthy as a crack house. Its been short term, uninformed thinking that has now created the perfect storm catastrophe we will inevitably witness over the coming decade.  Now that the big 3 have gotten themselves in such a mess we’re confronted with this question of a bailout as if its a new problem that’s just been created.  That some how the big3 are somehow victim of greedy wall street banks.  I can believe that the credit crisis makes it more difficult to operate – but its difficult because the credit is so necessary and its so necessary because the balance sheet is such a mess and the balance sheet is a mess because they don’t sell enough product!

A bail out will fix this?  A bail out program filled with loan guarantees and labor strings attached will do nothing more than delay the inevitable and force this market into an even more unnatural place with yet more on its shoulders if it ever would recover.  When its well known that car manufactures can make better products for less i ts inevitable and propping up this artifice doesn’t do anyone any good. ($38/hr vs. $70/hr for big 3)  Even the Governator gets it.

Talking with a cross section of people on the subject the only reason I hear for supporting a bailout is to prevent the impact to the rest of the economy – its a hostage situation – not something to keep or fix. The fact that our Ontario government has the economy so tuned around a model that’s been broken and in decline for decades is plain irresponsible and bad governance.

It seems plausible to me that significant elements of the big 3 (or all of them) will be gone in the next several years, but automobile manufacturing will still be an economic mainstay.  I’m not sure why we feel the corporations of Ford, GM and Chrysler can’t fail – it happens all the time in my industry and its taken as a healthy sign.  Out with the old and in with the new.  It doesn’t mean the industry/work goes away it just means things change, and that can’t be all bad – especially for these guys.