1. How, Why and When
to Raise Venture Capital
John Ruffolo
June 5, 2013

2. • Globally, how will the current and emerging economic, geopolitical and competitive forces shape Canada’s
(Ontario’s) industrial future?
• What industries should help support, if not define, Canada’s (Ontario’s) future in the 21st Century?
• A century ago, Canada’s economy was based on natural resources and agriculture; we shifted to a
manufacturing base in the post WWII period, and then shifted again to a service & technology focused
economy in 80’s/90’s.
• Should we turn back time and revert to a solely-resource focused economy again? Should the extraction and
selling of these resources to foreigners be the solitary focus of our industrial strategy for the 21st century and
beyond?
• While some Canadian sectors are doing well, the headlines from our knowledge based industry sector are
mainly concerning:
• large anchor companies are vanishing, through acquisition or bankruptcy;
• mid size companies are not stepping in to take their place;
• smaller companies continue to be starved of venture capital;
• our R&D spending, at 1% of GDP is declining, and leaves us ranked 14th in the OECD; and
• a recent Conference Board of Canada report gave us a “D” on innovation, and ranked us 14th out of 17
peer countries.
The Current State for Canada (Ontario)

3. • Our natural resources are not Canada’s only competitive advantage: we also have:
• a well-educated workforce
• multicultural diversity
• technological infrastructure
• world-class research capabilities, and
• proximity to the largest consumer market in the world.
• So why have we not leveraged these world class advantages? Perhaps for too many years Canada has
enjoyed a comfortable standard of living fueled largely by our neighbours to the south of us.
• We can no longer afford to be complacent and be all things to all people; otherwise, we risk impairing the
standard of living for our children and our children’s children.
• I am concerned Canada is squandering a unique opportunity for our future – a future based on innovation
and a knowledge-based economy.
Our Competitive Advantage

4. • We need a progressive, comprehensive, cohesive and sustainable innovation-friendly industrial strategy to
propel Ontario ahead in the 21st century.
• We need to make strategic decisions and focus.
• We need an effective strategy with both private and public sector collaboration around such areas as:
– education and re-training,
– immigration,
– productivity,
– culture of entrepreneurship, and
– financing, amongst others
• Strategies in each of these areas need to be identified & linked together to form an ecosystem that
extends from the germination of an idea right through to the development of thriving, globally competitive
companies. We need to determine if each part of the ecosystem is working as intended and if not, we
must actively fix it in order for the other parts of the ecosystem to function properly.
The Opportunity for Ontario

5. • We have some tremendous pluses on the education front.
• In particular, Ontario possesses some of the leading engineering schools in the world, with the University of
Waterloo leading the charge.
• I am not concerned with the level of technical engineering education being conducted in Ontario.
• But, until recently “entrepreneurship” has not been taught consistently as a profession in our leading schools
across Ontario; and where it is, it is taught in some universities and it is only recent.
• How can we make “entrepreneurship” as attractive as say law, medicine, or other professions?
Education and Re-training

6. • Cultural diversity is a huge asset for Ontario while the US is seemingly going in on the opposite direction.
• Immigrants, particularly in the technology sector, disproportionately create new companies.
• Canada should take an aggressive approach to welcoming immigrants in the country and it is evidenced by
the great work that the Federal government is leading in establishing the Start-Up Visa Initiative and the
Immigrant Investor Program
Immigration

7. • The productivity issue in Ontario is not a technology industry problem per se.
• Productivity and innovation are related but not the same thing.
• We know the story that Ontario has a productivity issue. There are many studies and reports out there to
support the conclusion. (Productivity is the amount of value created per hour of labour time).
• But Ontario’s lack of productivity is not a result of the lack of innovation in our technology industry in Ontario
but rather an indicator in the lack of innovation in our manufacturing, processing, refining, distribution, and
retail industries – industries that require significant capital investment.
• Our technology companies in Ontario are trying to sell their technology solutions to such companies in
Canada but most end up being far more successful selling their innovation to customers outside of Canada.
Productivity

8. • Very controversial!
• I do not believe Canada suffers from a lack of “risk-takers”.
• Calgary oil-patch example.
• Countless Canadian executives with significant roles in technology companies in the US.
• Wear failure as a badge of honour when you look at Silicon Valley
Culture of Entrepreneurship

9. • Over the past 10 years, the one component of the ecosystem hit the hardest is financing. In virtually each
growth stage of financing, we see enormous challenges.
• But things have been improving over the last 2 years or so.
• Over the past 10 years, between 2000 and 2010, venture capital invested in Canada decreased over 80%
from approximately $5.9B to $1.1B, with the number of companies receiving venture capital decreasing over
64% from 1007 to only 357 during that same period.
• BUT, 2011 has witnessed a reversal and the emergence of new sources of capital from angels to super
angels to incubators to accelerators to micro-VCs to early growth and to later stage VCs.
• Is it perfect? No, and there is still a way to go.
Financing – Overview

10. • So, what has really happened? The number of potential funders for these sources of capital has seriously
dwindled.
• Financial institutions – the banks and insurance companies used to be major players but due largely to lack of
returns and expensive cost of capital (Basle 3), the FI’s have largely abandoned the sector and there are few
signs it might return in the short term.
• Pension Funds – pension funds have largely abandoned the sector due largely to the lack of returns and the
deployment of capital to more predictable asset classes like real estate and infrastructure; sitting on the
sidelines with the exception of OMERS.
• Corporates – have not really been a player unlike the US.
• Foreign Investors – Section 116 has been great but most countries are facing similar pressures and thus
focusing on their home countries.
• Individuals / Family offices – always been around.
• Government – Teralys, OVCF, BDC, EDC – really the only ones left standing.
The Players

11. The Canadian financing ecosystem
Illustrative Start-up Financing Lifecycle
Breakeven
Valley of
Death
Friends &
Family
Up to $500K
Angels
$500K - $2MM
VC Round B
$5MM - $10MM
VC Round C
$10MM - $30MM
IPO
$30MM +
OMERS Ventures Target Stages
VC Round A
$2M - $5MM
Early Stage
Year 2
Later Stage
Years 3 - 8
Liquidity
Event
Year 8+
Seed
Financing
Year 1
Start-up
The Canadian financing ecosystem

12. • Most expensive form of financing
• Consider only when the requisite level of capital is critical and cannot be satisfied through other
alternatives
• Build a relationship when you are NOT looking for $
• Assess the value add
• Think of it as a marriage
• Aligned economically with similar value principals
Venture Capital Financing – Is it Right for You?

13. How OMERS Ventures is trying to differentiate
Known worldwide for our:
Long-term
patient
support
Deep industry
insight
Adding value
How OMERS Ventures is trying to differentiate
Entrepreneurial
culture

14. Questions?
Thank you!