The last great round of investments into Canadian VCs happened about 10 years ago. Since then, Canadian VCs have returned a negative IRR to their LPs. Not surprisingly, LPs were reluctant to re-up for a second gig.
Until recently.
At the CVCA conference in Vancouver, there were some green sprouts from the LPs and some suggestion that as many as 10 new funds are being contemplated.
If this is going to work, what needs to change so that the returns are better so that we can get more LPs excited?
One thing is that VCs have to find a way to make smaller investments in smaller companies. The VC model of putting in $2mm minimums is more than a lot of small companies want, or need. But with a lack of Angels to fill the lower end, VCs have to find a way to make more smaller bets earlier.
Secondly and this has already happened the rules need to change to provide foreign VCs (who still have dry powder) access to the Canadian market. The striking down of section 116 of the tax act has made it as easy for American VCs to invest in Canada as it is for them to invest in the US. While they are too big to come in on early rounds, B round opportunities should abound.
While M&A will still be the exit-of-choice for Canadian VCs, perhaps we can see some larger companies going out at better multiple to keep the investment tanks full and further excite investors.