It's no secret that the Venture Capital scene in Canada is... well, less than impressive. Some say that its because Canada hasn't yet recovered from the 2001 bust (I think that argument worked in 2003). Its true that Canada's Venture Capital industry is below levels it achieved in the mid to late 1990's, but there's a litany of other issues the market is facing that are keeping it from being as big and bad as our southern neighbours.

I mean, your first instinct has got to be our proximity to innovation; We don't really have any thing the least bit similar to Silicon Valley that attracts the same, copious amounts of cash that the they do. What few innovative clusters we do have spitting out potentially successful innovations (i.e. Waterloo, maybe some stuff coming out of MaRS) , Canadian Venture Capitalists have been known to - for lack of a better phrase - screw it up. They end up buying into the idea too soon, the firm burns through the cash just in R&D and... that's it (or follow-up financing, but if you're a Canadian Venture Capitalist, chances are you don't have a lot of cash to play with in the first place).

Canadian VC seems pretty dismal; Its probably not as bad as I'm making it out to be; Business Development Bank of Canada (BDC) publishes an interesting report that outlines the million and one things wrong with Venture Capital in Canada and gives some suggestions on how to fix it.

On the lists of Why VC just isn't flying here:

1) Government doesn't dole out enough cash money to finance R&D; VCs end up paying for it.

2) Each round of fund raising (that's when a VC firm raises money from people to invest in business) is A LOT smaller than the USA. So that means less time spent on good investments and more time spent fund raising (not good).

3) 4.1% return on average (according to McKinsey, its -2% over five years and 2% over 10, versus 2% and 20% respectively in the US). I don't think the risk justifies the reward.

What does it come down to? Canada's VC scene is just a reflection of it's entrepreneurial scene; I don't think Canadians make great and innovative entrepreneurs. The BlackBerry Fund (in which RBC Ventures has a big stake) just forked out over $16million this past week - but not in Canada. I just don't know if we're innovative enough.

Thoughts? (and don't try telling me the zipper is innovative)