Alberta high-tech firms look in vain for VC financing

An in-depth look at Alberta’s IT sector shows potential for profit, but not without the appropriate financing.

Ernst & Young LLP, Donahue LLP and Ipsos-Reid have released

the 2001 Alberta Technology Report, which polled 191 CEOs and other senior executives within the province’s high-tech community. For the most part, the results were good: almost 60 per cent said revenues were up in 2001, while 80 predicted an increase in 2002.

On the other hand, half of those surveyed said they didn’t have access to adequate funding and 68 per cent said this access was critically important to the survival of their companies.

“”The biggest challenge in our province right now has been around the issues related to the raising of growth capital,”” says John Pinsent, the manager of practice development for the Edmonton marketplace at Ernst and Young who served as chair of the steering committee for the report.

“”People were basically saying they’re having very significant difficulties in terms of raising the kind of money that they need to grow their companies. We’ve got a province that’s generating 14 per cent of the GDP (gross domestic product) and we’re only attracting about two per cent of the venture capital investment that’s going on in the country. That’s very disturbing.””

Pinsent says 21 venture capital (VC) deals were signed in Alberta in 2001, worth an average of $5.7 million. This is significantly lower, he says, than the average deal size in Ontario, Quebec and British Columbia. Though Alberta companies face a number of hurdles to get funding, he says the dearth VCs in the province is a hindrance.

“”VCs traditionally like to invest in their own backyard and so it becomes a bit of a chicken-and-the-egg scenario,”” Pinsent says. “”I think if we were seeing more VC activity in the province we’d see more deals, and it’s going to take more attractive situations to get those initial VC investments.””

Richard Prytula is the president of Montreal-based VC company TechnoCap. despite having invested in two companies in Alberta — BigBangwidth Inc. and YottaYotta — he says it’s a tough sell for province’s firms, adding none of their funding came from inside Alberta.

“”Venture capital is a U.S. phenomenon and the way it’s always operated in the U.S. is that the money stays close to home,”” he says. “”So the Silicon Valley VCs invest in a two-hour driving radius of Sand Hill Road. Same thing in Boston, same thing in Montreal, same thing in Toronto.””

With VCs unlikely to pop up out of the blue, Prytula says companies have to go to where the money is.

“”If you’re not there then you have to be there regularly,”” he suggests. “”You just have to be travelling pretty much non-stop.””

In fact, Alberta companies might have wanted to make Montreal their next stop: a VC conference focused on technology firms is taking place there until Friday.

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Jim Love, Chief Content Officer, IT World Canada

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