The MaRS Data Catalyst team is busting the myth that VCs are a cliquey group that only invests with each other, leaving startups and entrepreneurs out of the club.
By aggregating Thompson Reuters data, the group has been able to point to some behavioural trends among the most active VCs in Canada.
The team’s “data ninja,” Joseph Lalonde, says, “There’s maybe a notion among startups and entrepreneurs that VCs invest just co-invest over and over with the same groups of firms. From the data, we didn’t see that.”
“Certainly, there are some firms that repeatedly invest with each other,” says Lalonde. “But that’s not the overwhelming trend.”
Of 2,081 deals involving 382 VC firms investing in seed- and early-stage companies, the biggest co-investors are the Business Development Bank of Canada (BDC) and GrowthWorks Capital Ltd. While they’ve done 43 deals together, that still represents just 10.4 per cent of all deals in the study.
What does this mean for entrepreneurs looking to attract investment?
“I would be reassured if I were an entrepreneur,” says Lalonde. “It’s not necessarily the closed system some might think it is. A no from one isn’t necessarily a no from all of them.”
Companies looking for an investor should look at the interactive visualization (developed for MaRS by local data designer Gabe Sawhney) and get a sense of who some of the outliers are, maybe some of the VCs from other countries with a history of investing in Canadian companies.
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“There may be a firm in the network graph that has flown under the radar and is open to investing,” says Lalonde.
Lalonde says the graph isn’t perfect. Ideally, the team would like to aggregate a number of different data sets to get a clearer picture of the investment landscape.
But it’s a start. “There’s a lot of investment going into entrepreneurial activity and startups in Canada, from VCs, government and angel investors,” says Lalonde—the 2,081 deals that the MaRS study is examining represent $2.36 billion in disclosed and estimated equity. “We’re trying to pull the data together to get a picture of the startup landscape so that we can start to understand what entrepreneurs need, what financing works best for them, and eventually predict what kinds will succeed.”
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