Budding IT companies are taking a more cautious route as they approach the Canadian investment community, a venture capital expert says.

The University of Toronto‘s Innovations Foundation Monday announced the winners of its second annual business plan competition, which awards $500,000 equity investment as part of the prize packages. Transgaming Technologies, which makes software to run Windows-based games on Linux, won the Most Promising Business award, while Boolean Proteomics won for Most Promising Technology.

The 21-year-old Innovations Foundation, an assistance program for researchers affiliated with U of T, received about 60 entries for the Innovations Challenge from Southern Ontario-area entrepreneurs which were judged by a team of 45 members of the IT and VC community.

Andrew Maxwell, technology director at the Innovations Foundation, said this year’s submissions reflected much more realistic revenue goals and information on where firms would get their first-stage financing.

“I think people are getting a little more sophisticated in understanding how the venture capital community makes its decisions,” he said. “There’s a few things that are very consistent in the VC community for what we’re doing, and the most notable is having early-stage customers.”

Customers have become essential to validate that fledgling firms are worth investment dollars, particularly south of the border where the boom and bust has been more sharp.

“Canada’s gone a tiny bit more conservative, but the U.S. (VC scene) has essentially shut down,” said Maxwell, who just returned from the U.S. “People are not investing speculatively at all. It’s like their business model banged (them) around the head and they’re not going to do it again. In Canada it’s more of a small adjustment.”

Andrew Emili, one of the researchers behind Boolean Proteomics, said the success of his firm demonstrates a renewed interest in biotechnology startups.

“There was a setback in the genomics companies,” he said. “That probably brought some realism. It’s been an interesting transition because suddenly proetomics is being sold as the next greatest thing, but that was the same thing that happened with genomics.”

While genomics refers to the mapping of the human genome, proteomics is the study of proteins within the cell. It is believed by some researchers to be much more important in the discovery of disease information and the development of new drugs. Boolean has created a molecular profiling process for this sort of work.

“Now I think there might be some investor disconnect — that they’ve sort of heard or gone through this before — but I think now they’re starting to understand, and certainly the pharmaceutical industry understands the advantage of doing proteomics over genomics,” he said.

“You’re getting a convergence of the research community with the commercial community,” said Maxwell. “People are saying they’re willing to fund it as a company, whereas previously these sorts of people would only look for funding from research grants.”

Besides the business plan competition, the Innovations Foundation also hosts workshops that help prepare entrepreneurs for the funding challenges that lie ahead. Some of these, Maxwell adds, do not end up submitting a plan because they aren’t ready. Others may find the Innovations Challenge much different from the real world because there are so many decision makers at the judging table.

“With a VC, there may only be one person,” he said, whereas having a number of people involved provokes questions that might not have been considered and can give the proposal more depth.

“As people see more successes in their backyards — not necessarily from the university, but the community in Toronto — it will make more people who’ve had some ideas of setting up business who haven’t had the catalyst to do it yet to turn it into a business opportunity,” he said.

Other winners in the Innovations Challenge include Vector Innovations for an application to replace paper-based processes in health care facilities, and B-Innovative Inc. for a knowledge management program.

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