Hope Abounds in Canada’s Innovation Culture Going Forward: New Report

April 2, 2013

A profound culture of innovation in Canadian venture capital is about to take flight according to a new report released today from McRockCapital. This “new life” in the ecosystem will come after years of impeded innovation that was never properly woven into Canada’s cultural fabric.

“Canada has made a great start but we need to continue to build a stronger culture of entrepreneurship,” reads the report tabled by Scott MacDonald and Whitney Rockley.

“There is hope – more so today than ever before. Our motivation has never been greater, our infrastructure has new government support and our culture of innovation is taking shape.”

To understand Canada’s “innovation crisis” we need to stop focusing so much on venture capital studies. According to the report, over the past decade several studies have drawn conclusions based on capital supply numbers without further analysis of the core cause. Moreover, three fundamental requirements must exist for a country to be an innovative leader: motivation, culture and infrastructure.

While Canada’s innovation era was born at the same time as our neighbours to the south, several set backs impeded the “development of a deep seeded culture of innovation and entrepreneurism” within our borders. The report ends on an optimistic note though, as there is hope and motivation provided new infrastructure through government support comes. The result should be a “profound culture of innovation taking flight”.

The report explains that “Microwave Valley” existed out of necessity and crises following World War II. As well, innovation at the hands of men like Stanford’s Fred Turman influenced early entrepreneurship. “Microwave Valley” shifted into Silicon Valley as innovation from crises changed to innovation in search of profit.

What won’t come as a shock to sighing Canadians is that our nation too spawned entrepreneurship out of crises (in the form of V. Roe Canada’s Avro Arrow). Unfortunately this project was infamously scrapped, a decision that “profoundly impacted the future of Canadian innovation”. Coupled with Nortel’s massive stock crash in the early 2000s that left 60,000 Canadians unemployed, extensive brain drain followed.

While the Canadian venture capital industry made a “small debut” in the 1970s and 80s, its first large foray came in the form of Retail VC, with funds like the Labour Sponsored Venture Capital Corporation (LSVCC) and The Fonds de solidarité des travailleurs du Québec (FSTQ) that raised investment capital from individuals. A “nuclear winter” to describe the paltry VC level of the 1980s changed into a brief peak in 1996 in which there was “reports of too much venture capital chasing too few deals in the late 90s.” This, unfortunately, was followed by another VC shortage in the post-2000s time frame.

What followed, according to the report, was the birth of several private VC firms that we know today, including Rho Canada Ventures, Georgian Capital Partners and iNovia Capital. These firms have enjoyed raising significant capital along with several attractive exits.

McRock’s report “fundamentally disagrees” with a 2011 report from McKinsey & Company that claimed both Canadian entrepreneurs and VCs were subpar. McRock on the other hand claims that the angel network in Canada has always been strong, there have been a number of recent venture-backed successes and the Canadian fear of failure is changing as successful entrepreneurs like Hootsuite’s Ryan Holmes lead the way.

The authors conclude that while Canada has made a great start, it needs to continue to build a stronger culture. “We also need a long-term commitment from government and the Canadian securities regulators to ensure infrastructure and guidelines enable and encourage Canadian entrepreneurs to build billion dollar companies,” read the report.