Venture capitalism on the decline in Manitoba

Manitoba is a tough place to raise venture capital for new businesses, and is lagging behind most of the rest of the country in attracting such investments, according to new statistics.

A recent survey bythe information services company Thomson Financial suggests Manitoba raised $18.5 million in venture capital in 2007 25 per cent less than was raised in 2006, and almost 60 per cent less than in 2000.

'If you're successful, you're sort of despised. If you're not successful, you lose a lot of money.' Ken Cooper

Manitoba was the only province in Western Canada to see venture capital investments drop in 2007.

Saskatchewan, by contrast, more than doubled its investments in that period, with a total that is triple Manitoba's.

The 2005 collapse of the Crocus Investment Fund, a labour sponsored venture-capital fund, is part of the reason for the decline, according to Ken Cooper, managing director of the Winnipeg Angel Organization, which raises risk capital for small business start-ups.

"The decline of labour sponsored funds, basically due to Crocus, took a large volume of money out of the market, that frankly shouldn't have been there in the first place. So you might have some statistics that were biased upwards improperly in the first place," he said.

"The large majority of the investors in Crocus were not risk-taking investors, they were there simply for the tax credit, and frankly, I think, didn't know or didn't care about the kind of investment they were getting into. Highly inappropriate."

Kerry Thacher, CEO of Libre Stream, a company that raised venture capital in 2005 to launch a wireless video-conferencing device, says it was "just about impossible" to try to raise money in the wake of the Crocus collapse.

"We felt the chill. It was very substantial," he said. "People were concerned that venture capital was a very unsafe thing to do. And that persists today. It's still a very difficult environment.

"It took us about a year to raise it," he added. "Keeping people, you know, content and motivated and their chins up through a year-long process is very, very challenging.You've got to believe very strongly that what you've got is going to be successful and is worthy of investment."

Not enough rich risk-takers

Manitoba suffers from a shortage of the type of wealthy investors who are prepared to risk losing their money,Cooper said.

"There's just not enough rich people, I think, with investable funds that are willing to put it into risk capital. Risk capital's a tough market," he said.

Manitobans also don't seem to encourage such investment, he said.

"There's nothing exciting about being a venture capitalist in Manitoba.If you're successful, you're sort of despised. If you're not successful, you lose a lot of money," he said.

"We don't celebrate winners in Manitoba. We don't like that.If you're successful 'So, who did you rip off?' is the approach, I feel, that is probably more prevalent in Manitoba than it is in other provinces."

A new tax incentive introduced by the provincial government in January could help, he said.

"It's different than the labour-sponsored fund. It's the same kind of credit 30 per cent tax credit but it's targeted at the individual as opposed to a fund like the labour-sponsored funds were."

Unless something is done to increase investment in venture capital, young entrepreneurs will face a touch choice, Thacher said.

"They either don't do it, or they go elsewhere," he said.

"If you're young and mobile, then maybe you go somewhere else, where the access to risk money is greater: Ottawa, Silicone Valley, Toronto, Montreal, Vancouver."