“Who knew Canadians could be so cheeky?” tweeted Paul Graham, one of the founders of San Francisco-based tech accelerator Ycombinator last month. The tweet accompanied a picture of a billboard, looming above the 101 highway. “H-1B problems?” It commiserated. “Pivot to Canada. New Start-Up Visa. Low taxes.” Canada is surfing Silicon Valley’s neighbourhood, looking for immigrant talent. But if we get it, can we keep it?
Canada launched its Start-Up Visa program in January, as an incentive for foreign entrepreneurs to bring their talent here. It offers permanent residency to entrepreneurs who have funding from angel investors, venture capital partners, or a business incubator. The program, which opened for applications on April 1, will run for five years initially. The billboard’s installation punctuated a visit to the area by federal immigration minister Jason Kenney, to drum up interest.
Start-Up Visa was a win for Canada. It managed to bring its program into effect before the U.S., which has still not passed its own startup visa legislation. “Their immigration rules are preventing people from going. In fact, the U.S. is often kicking people out. If they’re kicking great entrepreneurs out of the country, we’d like them to come here,” says Danny Robinson, who was director of former Vancouver-based tech integrator Bootup Labs and co-founded the Start-Up Visa pressure group in Canada.
Mr. Robinson’s incubator helped bring some Romanian entrepreneurs, who ran an online news aggregator called Summify, to Canada. After becoming frustrated with the immigration process, he decided there must be a better way. It took around three years to push it through government, he says.
But is it enough simply to bring foreign startup talent to Canada? “All the benefits in the world except for one problem: investors there don’t invest!!” bemoaned one commenter on Mr. Graham’s picture. “They forgot to add socialism to that billboard,” complained another. “I’m already here for startup purposes and I can’t recommend it at all.”
“Are we doing enough to make that capital available? The answer is no,” says Adam Chowaniec, chair of advocacy group Startup Canada.
“If you’re in the resource industry or the oil industry or you want to make movies, then you can invest and get tax credits. If you want a small technology company, then you’re on your own. There’s no support.”
There’s no denying that funding is down. In 2000, venture capitalists invested $6.3-billion in Canadian companies, according to the Canadian Venture Capital Association (CVCA), which is a partner in the Start-Up Visa program. That stood at $1.5-billion last year. “There was an almost perfect storm,” says the CVCA’s executive director Richard Remillard, arguing that supply and demand became unhooked. It runs in 10 to 13-year cycles, he says, arguing it’s about time for a turnaround.
It isn’t just the amount of money that’s at issue, though; it’s who’s dishing it out. “The challenge isn’t on the late-stage side. It’s really the early stages where there is not a lot of traction,” says Boris Wertz, co-founder of Vancouver-based incubator Growlab and $20-million early-stage micro-VC fund Version One Ventures.
The gap is at the series A funding stage, where deals hover at around $4-million. This is the round where the least money flows downstream, because the large pension funds, which make up a lot of the investment community, can’t easily justify investments in smaller VC funds.
The Canadian government has stepped in. In January, Prime Minster Stephen Harper carved out $400-milliion in venture capital funding as part of his Venture Capital Action Plan. $250-million went to new funds, while another $50-million will go into existing high-performance funds, he announced. A quarter of the cash went to boost existing large funds.
There is plenty of funding in the United States for Canadian companies, says Chris Albinson, co-founder of C100, a non-profit body based in Silicon Valley that helps Canadian entrepreneurs succeed. 80% of C100’s work is done north of the border. “The most brilliant thing that the federal government has done in this whole ecosystem is changing section 116 of the Tax Act,” he says. The change, made in the 2010 budget, exempted shares in many corporations from taxable property status for non-resident investors.
Nevertheless, the amount invested in Canadian companies by U.S. venture capital firms amounted to only $380-million of the $1.5-billion total in 2012. Mr. Robinson says the government needs to publicize the section 116 breakthrough as much as the Start-Up Visa program. “There is lots of money that comes north of the border all the time,” he says.
U.S. investors are opening up to more global deals. “There are no venture capitalists I know of that are saying ‘I will do your deal if you move here.’ ”
Incubators are already excited about using the Canada Start-Up Visa initiative. Mr. Wertz is talking to an Israeli company with five employees that has been in business for two years. The firm has spent some time in the U.S., but must now return to Israel. “I am thinking about bringing them into Canada,” he says.
This is one of the first times Canada has led the United States in entrepreneurship, he argues. Accelerators were introduced in Canada two years after Mr. Graham’s YCombinator was founded, he points out. “Now, we are ahead. I hope it will last for a bit, and that we can play that card.”
Perhaps. But what of those Romanian entrepreneurs whom Mr. Robinson bought to Canada? Summify was acquired by U.S. social media darling Twitter early last year, and the news aggregator service effectively shut down. The developers now live in San Francisco, where they work at Twitter. Apparently, when it comes to retaining startup talent, we still have some work to do.