Where Have All the Investors Gone?

It is true; Ottawa has, relatively speaking, become a barren land for those seeking investment to fund a knowledge-based business. It wasn’t always the case as funds from outside of Ottawa flooded into the city before and during the tech bubble to fund locally based knowledge-based entrepreneurs. It is undeniable that we have the infrastructure to create innovative companies when one considers the number of government research centre’s based in Ottawa combined with local universities and community colleges and the presence of multinational innovative companies such as Cisco, RIM, Ciena, etc and rising stars including Afore, Granite Networks, Renaissance Repair, Media Miser, Solantro, HealthWave and MyMusic. Yes, we have a government culture that can negate the entrepreneurism needed to commercialize ideas and technology but this alone does not explain why funding of knowledge-based businesses is a challenge. There are many factors contributing to the funding challenge but there is one that I wanted to address more specifically. It is human nature. Ottawa has never had a significant financial industry presence in contrast to major cities around Ottawa including Montreal, New York, Boston and south western Ontario (Toronto). These communities draw in investment expertise that enables the creation of diversified investor communities – from investment banking including private equity to venture capital to mezzanine funders and angles. They have been able to create more diversified investment communities that are sustainable through economic cycles. Investors have a natural bias to invest within arms reach. I realize that this is changing as the globalization of our economies also extends to investors, however, I still believe that the “invest within arms reach bias” influences where investment capital is deployed. One way to address this bias is to play to the investors “greed” desire; the desire to maximize returns. It is the combination of the “invest within arms reach bias” and the greed factor that have contributed to the hollowing out the investor community in Ottawa. So how do we fix the funding gap. First, we need to facilitate a culture of entrepreneurship amongst Ottawa’s research community, universities, colleges and work force. This is what organizations like Invest Ottawa, Explorium and others have and are fostering. We then need rising stars, successes that illustrate success is possible. For these rising stars to be created we need to rebuild the investor community from the ground up. It starts with seed funding – the highest risk investment, generally the smallest funding round but arguably the most crucial to a knowledge-based business. A major contributor to seed funding are angels – high network individuals that provide capital to support early stage businesses. Ottawa’s angel community, through the Capital Angel Network and other private individuals, has been making investments, but we are falling short relative to other communities and the local need. Why is that? There generally does not appear to be a lack of wealth in Ottawa. It would seem that many high network individuals in Ottawa are not aware of the investment opportunities that exist within the Ottawa knowledge based sector. I think if they considered that the demand is high and the supply is small that they would see that there are positive returns to be made and have been made in the recent past. It is important to note that a good portion of the wealth created in Ottawa can be attributed back to the knowledge-based sector. It employs high income earners that contribute to local real estate, automotive dealers, restaurants, etc. The entrepreneurs lease commercial space, engage service providers and others that all contributes to our local economy and wealth creation. Another contributor to seed funding is an institutional funder that has as their business model investment in early stage companies. All major knowledge based centre’s have locally based seed funds. Ottawa needs institutional seed investors to work side by side with angels and entrepreneurs to support our rising stars. It is my strong belief that if local entrepreneurs have access to seed funding that it will result in more rising stars. This in turn will trigger the “greed” factor in investors outside of Ottawa that will cause them to ignore their “invest within arms reach” bias and spend more time and investment capital in Ottawa. This is why Welch is leading an event on Monday November 26 together with Labarge and RBC to bring out those that have not traditionally invested in knowledge based businesses to learn more about investing as an angel or investing within a local seed fund. The Capital Angel Network representing local angels and Mistral, a new Ottawa based seed fund, will, together with successful investors and entrepreneurs explain why the supply/demand curve presents an investment opportunity. Our hope is that we can engage more local investors to strengthen access to seed capital to create more rising stars and economic development in Ottawa. A win/win for all. For more information, please contact Bryan Haralovich, Partner at [email protected].

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