Raising Money for Tech in Alberta

An incredible number of tech startups have been created in the last year or so, as evidenced by the existence of blogs like TechCrunch and The List to track them all. Despite this, or perhaps because of it, some people are starting to get turned off. Caterina Fake, co-founder of Flickr, recently suggested that it’s a bad time to start a company. She outlined six reasons:

1. Everybody else is starting a company.
2. Your competition just got funded too.
3. Talent is scarce again.
4. You can’t operate in obscurity anymore.
5. Web 2.0 isn’t all that.
6. There’s too much going on.

With the exception of number five, I have to respectfully disagree. And judging by the comments she received on that post, many others do as well. More and more companies are being launched every day, and while not all of them will succeed, some will.

The vast majority of these companies are located in Silicon Valley, or at the very least, in the United States. For a while it seemed that Canada was missing out on this time of growth in the tech sector, but thanks to conferences like Mesh and the odd VC deal, that perception is starting to change. We still have a long way to go though, before Mark Evans will be satisfied:

What I want to know is when is Canada’s Web 2.0 party going to start? When can I start writing about super-cool start-ups strutting around with a multi-million dollar VC deals? When do I get to attend parties with an open bar, a great band and a nice “loot bag” when you finally decide to leave?

I have been wondering the same thing, especially given the fact that I have been creating a “cool startup” here in Canada. Through VenturePrize, Wes Nicol, and all of the people and organizations we have met along the way, I have learned a lot about investment and raising money, both here in Alberta and elsewhere.

If you can raise money for a tech venture in Alberta, you can raise it anywhere.

The main thing I have learned about where to raise money is that in Alberta, raising money for a technology based venture is next to impossible. Alberta sees something like 3% of all tech funding done in Canada, which doesn’t jive with our incredible economy. The problem is that the Alberta economy is really a one-trick pony – we’re almost entirely dependent on oil and gas (and real estate which becomes valuable because of the oil and gas). And with generous tax and royalty programs like the Innovative Energy Technologies Program and the Generic Oil Sands Royalty Regime (more on these here), why would an investor put money into anything but oil? They can get a significant portion of their investment back through these and other royalty programs. I have been told that in some cases an investor can get almost half of what they invest back in credit!

One advisor I spoke with suggested that the way our provincial economy is setup is really “punitive” for technology based firms. It’s bad news for the future of our province too, as oil and gas are simply not sustainable over the long haul.

This web page appears to have been written in 1996, and yet the three issues identified at the very top still affect technology commercialization in Alberta (not to say that nothing has been accomplished in the last decade):

1. The shortage of financing for SMEs, primarily for seed or early stage companies with a capital requirement of less than $500,000.
2. The lack of financing options related to commercialization and early growth situations, where public offerings or other forms of institutional financing may not be appropriate.
3. The lack in Alberta, relative to other jurisdictions, of tax related incentives, to stimulate investment in the technology sector.

They match up with everything I have learned thus far anyway. More recent publications seem to confirm things as well, such as Ernst & Young’s Alberta Technology Report from 2004:

“Limited funding is an issue that needs addressing,” says Ian Robinson, who as team leader of Ernst & Young’s Technology, Communications and Entertainment group heads up the report. “Locally based angel investors are improving the picture-in 2003 we saw a quarter of companies supported by angels, an increase from 17% the previous year. But few Alberta companies are receiving support from venture capitalists, and small companies-the majority of Alberta’s technology sector-are not able to access funding from these sources. Not surprisingly, perhaps, 38% of companies suggest a willingness to leave Alberta, in part to gain better access to capital,” he says.

So what can you do to raise money for a tech venture in Alberta? Turns out there are still a few options, one of which is of course to simply look elsewhere! In addition to personal or family and friends capital, debt funding, and the other traditional methods of raising money, here are some of the programs available in Alberta:

• Alberta Deal Generator
  “Alberta Deal Generator (ADG) has established the largest network of accredited investors in Canada who are actively pursuing opportunities in Alberta’s early and growth-stage companies. We work to facilitate investment in high-growth Alberta technology companies.”
• VenturePrize
  Having gone through the competition, I can confirm that it is a reasonable way to attract investment. At the very least you will likely be introduced to some of the individuals and groups in Alberta that might be interested in investing.
• Scientific Research and Experimental Development Program
  “The federal government provides income tax incentives to Canadian taxpayers that conduct scientific research and experimental development (SR&ED) in Canada. The program encourages industry, including small business and start-up firms, to develop technologically advanced products and processes in Canada.”
• Industrial Research Assistance Program
  We have consulted with IRAP here in Edmonton, and it turned out that we just weren’t at the right stage for funding (though they have helped us in other ways). If you’re getting started with a technology based company, make sure you talk to IRAP early so you can plan to use their services and funding.
• Tech Focused VC Firms
  Organizations like Venture Alberta and SpringBank TechVentures are focused on technology based firms, though I have no idea how successful they have been.
• Venture Forums
  There are lots of forums that are open to any company in Canada, no matter where you are located, such as the Canadian Venture Forum. There are some local ones too, like the Keiretsu Forum for Calgary and Edmonton.

Hopefully that gives you a good overview of the funding situation for technology companies here in Alberta. There is lots of room for improvement, and until things do improve, I would not be surprised if we end up losing some good technology firms to other locations.

That said, I guess I should point out that starting a company in Alberta is not all bad. There are many advantages to being here, such as excellent access to labor, reasonably good tax rates, and very little threat of natural disasters (such as flooding destroying your data center or something).

In terms of funding though, if your venture is oil and gas related, Alberta is the place to be. If instead your venture is technology based, you might be better off elsewhere unfortunately.