Call-the-Cloud

Last Tuesday I was at a local Toronto event called CEO Fusion, run by Bryan Watson, who is also director of the National Angel Capital Organization. He started the evening by saying to the crowd that traditional venture capital in Toronto is effectively gone. So the mood among entrepeneurs in the room was pretty gloomy. In fact, the main theme of the evening was “how to survive with less capital”.

Well, yesterday Mark (”StartupCFO”) MacLeod sounded a bright note by posting news about a couple recent VC deals in Canada.

1) Tech Capital Partners invested in PostRank (formerly AideRSS), a tool from bloggers to understand the traffic in and out of their blogs. They just released an update today that won praise from ReadWriteWeb: “We love … PostRank … but today [it’s] really outdone itself with the release of a powerful and eye catching new widget to display your blog’s hottest posts”. [More] I haven’t tried PostRank yet (I’ve been neglecting the ole’ blog a bit) … maybe in the new year.

2) RHO Canada and Growthworks joined JLA as investors in Netshelter, putting together an $11m round. Netshelter is a “vertical media network”, which means they own a collection of niche websites/blogs that add up to a lot of well-segmented traffic. Their site claims they “recently passed CNET to become the #1 Tech property online according to comScore”. Scanning through their list of properties there are indeed a few names I recognize, but I have to say it’s surprising that a company I’ve never heard of has this kind of reach.

3) Overlay.tv just raised $4.6 from Edgestone, Tech Capital Partners  and Celtic House. Wired calls them “VH1’s Pop-up video mashed together with the shopping network.”

That’s the good news. The bad news is that all of these are later stage or follow-on rounds. No new deals.

Following Mark’s post, I had a Twitter thread with him and old friend Jim “JPWP” Parsons:

I’ve heard several people say things ike “we need a restart on VC” or that the “VC model is broken”. But I haven’t really heard how it can be done differently.

For a different perspective, read this excellent post from Allan Leinwand, a Bay Area VC that I met last year: Counterpoint: It’s Time for Venture Capital – Now More Than Ever.

Bryan Watson just got back to me on this, adding some data to quantify the trend (emphasis mine):

There are, with a few notable exceptions like Growthworks, XPV, Avrio Ventures, TechCapital Partners, etc., virtually no VCs left in the early-stage space in Ontario. The Canadian Venture Capital Association released a report on November 18th citing that, from across Canada, Ontario experienced one of the most substantial declines in VC activity in Q3 2008. A total of $163 million was invested in 36 companies in the province, or 43% less than the $283 million of Q3 2007. I suspect most of this was later-stage follow-on investment into existing portfolio companies, not new investment in early-stage companies. Thank goodness for Angels!

Thank goodness indeed. Without them, start-ups like Fonolo and many others simply wouldn’t exist in Canada.