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There is a disconnect between the thriving Canadian startup community and the financial community.

It’s a simple supply and demand problem: As more startups are created, the amount of financing to support them has not kept pace. It means there are many promising startups that struggle to succeed or, for that matter, survive.

For Canada’s New Economy, this is troubling, which helps explain why the federal government committed $500-million to support venture capital activity in the last budget.

The state of the startup landscape was captured by Senia Rapisarda, vice-president of strategic investments and initiatives for BDC Venture Capital, the venture capital arm of the Business Development Bank of Canada, when BDC unveiled a new $6-million program to support graduates of FounderFuel, a startup accelerator based in Montreal.

“Entrepreneurship and venture capital investments are on the rebound in Canada; but there will always remain this six- to 12-month critical period for many new companies when the startup capital from the partners themselves, their families and friends starts drying up and before financing from venture capitalists and angels can be secured. Too many promising companies have not made it to the next stage of financing for lack of operating capital,” she said in the release.

Translation: There are lots of startup entrepreneurs with good ideas, but a lot of them run into a brick wall before they can gain any kind of momentum.

Through FounderFuel, BDC could invest $150,000 in each graduate of the accelerator’s 12-week program through a convertible note. Up to 40 graduates will be eligible.

Before anyone accuses me of being all doom and gloom, there are encouraging indications that Canada’s startup ecosystem is attracting more support.

In addition to supporting FounderFuel, BDC made a similar financial commitment earlier this year to graduates of Toronto-based Extreme Startups. Last week, Waterloo, Ont.-based Communitech unveiled the $30-million HyperDrive program that could invest as much as $750,000 in 40 startups through a combination of cash and in-kind services.

Meanwhile, there are a growing number of incubators being created that provide startups with education, workspace and mentors. An example is the Driven Accelerator Group, which I wrote about earlier this week.

The bottom line, however, is that much more has to be done to support Canadian startups. While it is great to see organizations such as BDC and Communitech step up to the plate, it is not nearly enough if Canada is serious about creating a vibrant and sustainable startup community.

Canada’s startup sector needs more support from institutional investors, who have been sitting on the sidelines for far too long.

As well, it needs participation from Corporate Canada, which is missing out on great opportunities to gain competitive knowledge and valuable insight about what’s over the horizon.

In other words, let’s start walking the walk, rather than talking the talk.

Globe and Mail – April 27th, 2012

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