Canada’s venture capitalists short on cash

This story was originally published by Canadian Business.

Thalmic Labs announced recently that it raised a whopping $158 million in funding, a deal that’s being touted as one of the biggest venture capital investment in Canadian history—second only to Hootsuite’s $171 million in 2013.

But Canadian VC firms were largely absent from the round, which was led by Intel Capital. Although the country’s venture capital ecosystem is slowly improving (Canadian firms invested $2.3 billion in 2015, compared with $1.9 billion in 2013), VCs are still not equipped to participate in blockbuster deals.

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“The short answer to why there weren’t more [Canadian investors] is: There are no VCs that can write a cheque this size,” says Stephen Lake, Thalmic co-founder and CEO. “We don’t really have anyone of that scale in Canada.”

After Intel, the Amazon Alexa Fund and Fidelity Investments Canada (a mutual fund company, not a VC) were the biggest investors. iNovia Capital in Montreal was the only Canadian VC to contribute funding, along with a handful of other small Canadian investors whose contributions accounted for a tiny portion of the overall fund.

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It’s little wonder deep-pocketed investors were willing to make big bets on Thalmic Labs, a wearable tech company and one of Canada’s startup darlings. The four-year-old firm got its start at Y Combinator, the prestigious Silicon Valley accelerator, where its Myo arm band—which lets users control any mobile device by measuring electrical signals triggered by the muscle movements associated with certain hand gestures—won praise and attention.

Following the program, the company secured $14.5 million in Series A funding to commercialize the Myo. Today, the device is used to assist surgery, control prosthetic limbs and play video games, among other applications.

When it came time to raise another round, Lake says Thalmic, based in Kitchener-Waterloo, Ont., did approach Canadian venture capital investors. “In the end, the one Canadian VC who was large enough to potentially participate substantially had previously decided the company was not a fit for them and had passed on investing.” (Lake declined to name the firm.)

In fact, the largest VC companies in Canada control between $500 million and $600 million in assets, while the top American VCs have upwards of US$4 billion to invest.

Read the full story at Canadian Business.

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