Health IT, Startups

Is a Canadian capital crunch an opportunity for VCs in U.S.?

Early stage technology companies in Canada, including health IT, have quite a few opportunities for […]

Early stage technology companies in Canada, including health IT, have quite a few opportunities for angel and seed stage investment. But an article in The Globe and Mail  points to a chasm at the mid level stage. Venture capital firms positioned to spend $10 million to $20 million are relatively few and far between in Canada. That could signal more opportunities for investment by U.S. firms.

The article warns that the stage is set for a capital crunch. “When startups begin earning revenue in the millions and need growth funding, they can’t self-finance, the funnel narrows and fewer financiers are still in the ring.”

It notes that U.S. companies were the source of some of the largest financing deals last year, and singles out firms like Accel Partners, Sequoia Capital, and Bessemer Venture Partners. These are the kind of companies positioned to offer advice from industry players and introductions to key international markets.

The mid-stage capital crunch is not a new issue, as Jim Orlando, the head of Ontario’s pension fund investment arm OMERS Ventures, points out in the story. It’s amplified because so many startups have matured around the same time.

Several Canadian health IT companies have opened up offices in the U.S., helped by accelerators set up by the Canadian government.  The U.S. offers them a friendlier investment climate, but there is also a demand for the kind of services they can provide to help hospitals and physician practices better assess and monitor their patient populations. Still, since many have proven the effectiveness of their technology in the Canadian market, they are perhaps viewed as an investment opportunity that carries less risk as they seek to prove themselves in the American healthcare industry.

Timing is critical when it comes to entrepreneurs. Maybe U.S. healthcare reform will help Canadian mid-stage health IT companies through the capital crunch.

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