“What really excites me about venture capital is that … they [the venture capitalists] really have to be visionaries. You have to see exactly where the markets are going to be in the future, what great innovations are going to be,” noted Blake Goldring O.C., Executive Chairman of AGF Management Ltd., at the 2024 AI Symposium organized by Ivey’s Lawrence National Centre (LNC).
Blake, who is also on the Advisory Council of the centre, moderated a panel discussion with three distinguished venture capitalists, Janet Bannister, Founder and Managing Partner of Staircase Ventures; Richard Black, Managing Partner of First Ascent Ventures; and Richard Nathan, Senior Managing Director of Kensington Capital Partners. The panel discussed the current venture capital (VC) landscape and the prospects of investing in AI innovations.
Trends in Venture Capital
While total VC funding across industries has declined since 2022, LNC’s own research using data from Crunchbase and PitchBook suggests that start-up funding remains robust in AI. However, only one quarter of AI start-ups in Canada have raised $1million or more in funds, and 60% of total funding in the industry was raised by the 25 largest AI start-ups in Canada, suggesting a highly skewed distribution of funds raised by start-ups.
From a global perspective, Canada, according to BDC, ranks third in the G7 for total funding per capita raised by AI companies. Blake contends that the potential for outsized returns and the creation of companies with billion-dollar valuations remains strong in Canada.
Reflecting on his 34 years of experience in venture capital, Richard Black notes that when he started working in the industry, “there were two firms in Canada doing VC. Everything else was friends, family, and fools’ money, as we like to joke about it.” During the 1990s, Canadian technology sector grew significantly with companies like OpenText and Hummingbird emerging as industry leaders. According to Richard, the Canadian pension plans were active investors in the ecosystem at the time.
Richard Nathan emphasized the regional nature of the VC market, noting that funding activities are concentrated in hubs such as Toronto-Waterloo, Montreal-Ottawa, and Vancouver. “The Canadian environment remains attractive due to its stable government, excellent tech talent, and supportive [federal government] policies like SR&ED [Scientific Research & Experimental Development incentives] and IRAP [Industry Research Assistant Program].”
Janet Bannister, whose VC firm, Staricase Ventures, focuses on seed stage investing, underscored the importance of early-stage funding in nurturing innovative start-ups. While the overall amount of capital invested in Canadian companies has decreased compared to the 2021-2022 boom, Canada has proven to be more resilient than the U.S. in terms of venture capital market performance. “Canada’s strength lies in its ability to maintain a steady flow of local funding for seed stage companies, which often leads to sustainable growth and successful exits,” noted Janet.
Importance of Leadership
The panelists emphasized the importance of recognizing visionary leaders and supporting start-up teams capable of realizing ambitious goals.
The role of a CEO changes quickly in a fast-growing company, observed Janet Bannister, so founders needed to learn and adapt quickly. Echoing this sentiment, Richard Nathan asserted that VC firms invest in start-ups largely based on the quality of the team. “Successful leaders are those who work tirelessly, demonstrating the intelligence and determination necessary to navigate the challenges of early-stage tech ventures.”
Highlighting the importance of leadership in VC firms, Blake Goldring, noted that the success of these firms depended on their leaders’ foresight in market trends and identifying ground-breaking innovations. Additionally effective VC leadership entailed not only in mobilizing funding but also “nurturing start-ups to achieve their full potential.”
Challenges in the Ecosystem
The discussion also delved into the challenges facing the Canadian venture capital and start-up ecosystem. All panelists agreed that the new policy increasing capital gain tax would have a negative impact, driving both entrepreneurs and investors to consider relocating to more favorable environments.
According to Richard Black, already a few entrepreneurs from his network were in discussion on potentially leaving the country. Janet Bannister noted that entrepreneurs already faced several challenges in scaling their innovations, and “it [the capital gains tax changes] is the straw that broke the camel’s back… I think it’s created a very emotional reaction that our government does not want us here and ‘If I’m not wanted here, I’m going somewhere where I am wanted.’”
Additionally, there were concerns around some government initiatives. Referring to subsidies provided to attract investments from certain foreign firms to Canada, Richard Nathan said, “I generally oppose policies is where government starts to try and pick winners.” Rather he argued that the government should support the development for infrastructure layer that can benefit all, by providing a level playing field, enhancing education, reduce taxation, and offering grants/programs like SR&ED and IRAP.
The Future of AI and Venture Capital
So, what excites these venture capitalists about prospects of AI?
To Richard Black, it’s the practical applications of AI, particularly in business software, that offer clear returns on investment. According to Janet Bannister, there is immense potential of AI in healthcare; in particular, emerging economies can harness this technology, potentially leapfrog traditional methods and offer better access to medical services. Richard Nathan expressed excitement about AI’s potential to revolutionize everyday tasks, from personal assistants to autonomous vehicles.
“AI can fundamentally change how we interact with technology and improve our daily lives,” he remarked.
Renée Hueston MBA’24, is a Research and Communications Analyst at the Lawrence National Centre.