Alberta is a great place for high-tech business – excellent research facilities, well-educated workforce – but there is a serious gap in access to capital for startup and growing companies.
Norman Mendoza of Redengine Inc., an Edmonton-based e-business solutions firm that was recognized this year as one of Canada’s fastest-growing companies, highlights the problem by asking: “How do we grow from here? We’re committed to growing our company in Alberta but is this the right place for us?”
Similar sentiments were expressed last week during a discussion panel at the Technology for Success Showcase, a one-day event at the Shaw Conference Centre that attracted displays and delegates from high-tech industries such as biotech, nanotech, new media and health.
The problem is not a lack of capital or angel investors willing to invest in startup, risky ventures but a lack of access to that capital, panelists agreed.
Michael Raymont, vice- president of technology and industry support with the National Research Council of Canada, said the oft-quoted remark that “we don’t back winners” in Alberta is wrong.
“Sometimes you have to gamble,” said Raymont, who has headed three Canadian technology companies. “I bought two companies and took them south (to the U.S.) because the opportunities are better there.”
Large business tells government to lower taxes and simplify the rules, he added.
“That’s exactly what they need to thrive,” he said, “but that’s not what early stage companies need.
Government must provide a investment climate that is more risk-averse because private investors are less risk- averse. Private investors are not interested in long-term research. They want a quick payoff.”
Other provinces like Manitoba and Saskatchewan provide support to startup companies, said John Hodgert, president of Winnipeg-based merchant bank Bannatyne Financial.
One of the company’s clients is the $90-million Western Life Sciences Venture Fund launched in January 2002. Its function is to close the gap between research in the life-sciences area and commercialization.
Both Saskatchewan and Manitoba have provided some funding that has been used to leverage funds from private sources.
His company is hoping to establish an $80-$100 million venture capital fund in Alberta soon.
It’s not a case of one province trying to outdo another by offering more incentives to attract more high-tech companies, but equalizing opportunities, Hodgert said.
In the meantime, Ray Moschuk, a fund adviser with Okanagan Capital Fund, a small-business venture-capital firm established by the B.C. government, suggested that Mendoza move his company and its investors to the Okanagan.
“If your company meets our requirements, your investors will immediately get a 30-per-cent writeoff on their investment,” he said.
“Right away, if they invest $100,000, that’s a $30,000 return on investment.”
Venture capital funds are not interested in small deals of $1 million or $5 million, said consultant Ken Gordon. “The deals in Alberta aren’t large enough,” he said, adding they also want a local investor to take the lead but that local investor is often difficult to find.
Mike Scarth, an associate with SpringBank TechVentures in Calgary, said he looks at three key items when he’s considering investing in a company:
its management team; the strength and breadth of the sales pipeline – “find out if people will buy your product before you build it”; and its competitiveness and differentiation – “why would somebody buy your product?”
More than 100 people attended the sixth annual Technology For Success showcase, sponsored in part by the Edmonton Capital Region Innovation Centre and Economic Development Edmonton.