Ask an Investor: Should I prioritize pitching US investors over Canadians?

american

Welcome to a BetaKit weekly series designed to help startups and entrepreneurs. Each week, investors tackle the tough questions facing founders today. Have a question you would like answered? Tweet them with the #askaninvestor hashtag, or email them here.


When Christian discussed building a list of your target investors a few weeks ago, his comments around geography were limited to considering locality (with the assumption that you might want someone nearby). And yet, ask anyone in the Canadian tech ecosystem for their thoughts on Canadian versus US investors (or search StartupNorth), and you’re likely setting yourself up for a heated conversation.

This conversation is increasingly topical as Canada’s stock is rising. Toronto is bragging via Amazon RFP, industry heavyweights (Google, Facebook, Microsoft, Uber) are building Canadian AI research teams, accelerators are courting US VCs, and Trudeau is championing Canadian tech innovation. As Canadian startups finally get their due, those startup founders have more capital options than ever and this question of investor HQ comes up again and again.

Our Canadian companies have outperformed their US competitors, and as Canadian VCs, we can do the same.

As a Canadian VC, I’m happy to see US VCs actively investing north of the border. Sure, it makes my job harder, but ultimately we’ve always considered US VCs our dominant competitor. More capital (that comes without a requirement to move the company down south) helps the ecosystem grow, encourages later-stage companies which spin-off talent which creates and joins other startups, ultimately creating the density we need to flourish as a community.

And competition among VCs is a good thing for startups. It increases the chances that one investor sees something worth investing in that others may have missed, it (ideally) results in fair pricing and clean term sheets, and it makes sure that as investors we’re constantly upping the bar on the value we’re providing in the ecosystem. Our Canadian companies have outperformed their US competitors, and as Canadian VCs, we can do the same.

The location of your investors is one factor among many to consider when raising funds, and the emphasis you place on geography will differ depending on the role this VC is taking. If they’re a lead investor, the respective strengths highlighted above warrant more consideration than when you’re examining an investor who’ll account for a smaller portion of the round. It’s increasingly common for founders to push for co-leads or two main investors, one of whom is a name brand in the US and the other is a reputable local VC.

What are Canadian VCs’ unique advantages?

  • They likely have a much stronger local network than an international VC. By virtue of being located in your backyard, they’re better tied into the local ecosystem and can help you hire and recruit advisors. Local VCs know who’s looking for new opportunities, and have the relationship to influence those individuals in your favour.
  • They help you maintain your CCPC status, which comes with a host of tax benefits.

What are US VCs’ unique advantages?

  • When companies need access to international networks and strategic partners, a US VC is well-positioned to facilitate those conversations by virtue of being located internationally. If you’re building a regional sales office or advanced manufacturing center south of the border, an investor in that region is more likely to be able to make helpful introductions. The same applies with product and distribution partnerships.

But when we think US VCs, we’re often limiting our analysis to the group of top-tier investors that have storied histories and have funded billion-dollar companies. These experienced investors are highly valuable in differentiated ways, but they’re not uniquely American traits; the longevity of the US VC ecosystem has just bred more VC firms of this nature.

  • Experienced investors can share lessons learned. Think of Kik raising from early Tumblr investors – the pattern recognition those VCs have is invaluable at accelerating growth and avoiding roadblocks.
  • Experienced investors have a reputational benefit that can give your company a “halo effect”. If you’re a consumer app entering the US market, announcing funding from a top-tier US consumer VC is a signal of legitimacy to potential hires and partners. A great example is Drop raising from NEA.

Ultimately, a better way to consider the value you’re getting from Canadian versus US investors is framing it instead around experience and years of investing. Compare a Canadian firm on its third or fourth fund to a US investor three months into its first fund. The Canadian VC will have more lessons learned, a stronger track record, and potentially deeper reputational benefits and relationships with strategic partners. If you’re looking for an easy answer (spend 60 percent of your time pitching US VCs), there isn’t one to be found!


Christian’s take:

Christian Lassonde

There is a benefit for founders to the size of Canadian VC ecosystem. For any one stage of investing, there are only about a dozen venture funds, (the exception being the early seed stage where there are maybe a few more). Developing a short list of funds whose investment thesis matches your company profile doesn’t take that much time.*

In comparison, there are something like 900 venture funds in the US. Meaning, for each stage of financing there are hundreds of firms. Getting in front of an exhaustive list of funds that fit your company requires a significant amount of time and resources.

As Sarah correctly pointed out, there is no right way or right answer on which approach to take.

Some of the more viable approaches include finding a Canadian VC lead who can help you navigate their US VC fund relationships. There are also some Canadian angels in the Valley who invest and advise startups on building US VC relationships. Lastly, there are programs like the C100’s 48 hours in the Valley. The C100 has built 48 hours around connecting Canadian startups to US VCs and clients.

Whatever approach you take, it’s essential to plan for the time it will take building US VC relationships well in advance of needing funding. The genuine risk of underestimating the time commitment means potentially driving your company off the cliff. If you think fundraising is hard, winding down your business because of failure to plan your fundraising is even harder.

*Overall, the small size of the Canadian VC marketplace is a disadvantage. It should be much bigger. I’m just trying to highlight a small benefit to the small size.

Sarah Marion

Sarah Marion

Sarah Marion is an Associate at iNovia, a full-stack venture capital firm that partners with audacious founders to build enduring technology companies. iNovia manages $500M across three funds, and holds offices in Montreal, Toronto, San Francisco, and London. For more information, visit inovia.vc