Dominique Bélanger is vice-president of strategic investments and partnerships at BDC Capital (@BDC_Capital).
Venture capital and private equity, two historically distinct beasts, are overlapping more and more as the Canadian tech scene seems to be getting a makeover, according to BDC Capital industry veteran Dominique Bélanger. Private equity shops are getting into companies earlier and earlier, he says, while venture capital funds are making bigger investments in later-stage companies. Meanwhile crowdfunding and boutique VC firms have emerged as a viable financing option, democratizing the market.
"The landscape is changing," said Mr. Bélanger. "Fast."
Mr. Bélanger should know: He's worked as a venture capitalist, angel investor, and entrepreneur for more than a decade. As current vice president of strategic investments and partnerships at BDC Capital, the venture capital leg of the Business Development Bank of Canada, he currently manages a convertible note program that has funded more than 60 startups across Canada.
Canadian venture capital activity has warmed up a bit, albeit from pretty anemic standards, with total venture capital investment reaching a six-year high of $2-billion last year. Mr. Bélanger expects that to continue. "There are a lot of positive signs," said Mr. Bélanger. "There's a renewed dynamism, from the West Coast to the East Coast… I'm very optimistic."
As the startup scene continues to grow across Canada, companies rapidly need access to cash – from seed rounds to expansionary stages – prompting a more fluid financing environment. Whereas the financing market is traditionally segregated, with venture capital handing off the baton to private equity for later stage funding, companies are dipping their toes in a grey area. Examples abound: Toronto's XPV Capital identifies itself as a private equity and venture capital fund, specializing in water technology across all stages. Meanwhile Klass Capital, a VC firm also in Toronto, invests in late-stage businesses, and 32 degrees, a Calgary-based PE firm, focuses on early-stage energy companies.
"The frontier is blurring, and that's a very good thing, because it warrants a greater market," said Mr. Bélanger. Both venture capital and private equity are also leaning into less traditional technologies for their portfolios, Mr. Bélanger adds, and a "micro-VC phenomenon" is emerging. Many smaller venture funds, harbouring less than $50-million, have popped up across the U.S. and Canada. Over the past two years, Mr. Bélanger's team at BDC funded nine small venture capital funds for anywhere between $7 and $50-million.
One reason behind this trend: The largest funds tend to scoop up big returns with huge, attention-grabbing deals, while smaller funds also earn high returns because the managing partners often hold a close personal interest in seeing the fund succeed. This leaves a "valley of death" for medium-sized shops, says Mr. Bélanger. But it's also strategic – an entrepreneur with deep, specific experience can open a leaner fund with a hyper-focused portfolio. A prime example is Matt Golden, a Toronto veteran in mobile startups who launched Golden Venture Partners in 2011, a seed venture capital fund specifically catered to mobile.
There are also subtler changes. A new breed of venture capitalists is permeating through Canada, says Mr. Bélanger, as more and more startup entrepreneurs are opening their own venture shops, rather than the bankers and accountants who dominated the industry in the 1980s and 1990s. Still, the Canadian financing landscape, along with that of London, Berlin, and the rest of the world, lags far behind the sophisticated jungle of Silicon Valley.
The key to succeeding in tech, Mr. Bélanger says, is simple: Don't try to mimic the Valley. Instead, Canadian venture funds and entrepreneurs should specialize in industries Canada is exceptional at, such as water and agricultural technology. "Anything that's related to oceans, we are actually really good at."