Investing in Canadian Startups, Is it Worth It?

understand entrepreneurs understand not there's a lot of issues going on economics and and investors are more risk averse with the interest rate increase the current economic and political environment uh increasing risks to investors and the canadian government changing capital gains taxation rules is it still worth it for canadian investors to risk funding startups I certainly think so. As someone who does it myself, I feel like it absolutely is. Sure, the capital gains tax change is slightly annoying, but if you actually look at the number of situations where it's going to be directly applicable, You know, it's a minor change. It's not sixty six percent is getting taxed. It's the inclusion rate. You know, when you pass two hundred fifty thousand is going up from fifty to sixty six. So it's it's annoying. Sure. Would we prefer it wasn't there? Yes. But is it something that's going to sort of stop what I would be doing normally? No, it wouldn't sort of be interrupting that. I don't think so. It's still it's still a great time to to invest in Canadian businesses. uh i'll jump in the thing that i think a lot of people don't appreciate is underlying am i on no i can i can hear you jeff i think maybe graham's got some lag um the i think what a lot of people don't appreciate is that um a lot of angel investors aren't actually in it for the return on investment which is sort of shocking to think about but It's a part of their portfolio that's kind of a give-back part of the portfolio. There certainly are some that are in it for getting good returns. But I know a number of angel investors who have ample funds, let's say, who don't really think about return on investment. They want to invest and support good companies and move them ahead. But they're not really there just to get a great IRR over a five-year period. That's not their motivation. My own personal experience, you know, I've been investing now for just over six years and I've just had my first exit last week. Round of applause. Congratulations. So, you know, and I don't expect any of my other ones to probably exit for a number of years. So you've got to be patient as an investor and hopefully your motivations go beyond getting a great return because you can always buy Nvidia shares, I guess, if you want a good return or bad return, depending on what week you buy them. That's my two cents on that. Graham? Yeah, I think as annoying as the changes are, it doesn't really change the fundamental math behind angel investing, which is kind of it's one of the few places where you have kind of asynchronous risk and return of like, if you put fifty into a company, it can return millions or and your downside is limited to the fifty you put in. And I think the reality is if you make ten bets, the capital gains change has an impact on the ones that are going to kind of return close to the capital you put in them. But it's not going to wipe out the reason to find one that kind of wins and returns the overall portfolio. So for me, no material impact on activity in Canada. I do think it continues to raise the bar though, that for what you're looking for, for companies. And I think to me, that has more to do with companies that are actually solving interesting problems versus I think what we sometimes see a lot in the ecosystem when people are saying it's really hard to get funding, it's like, no, great ideas and great companies typically find funding pretty quickly. Mediocre ideas tend to struggle a lot to find funding. And I think it's pulled a lot of people out of the maybe more of the charitable funding side that are funding companies that maybe shouldn't have gotten funding or needed to be up and refunded before they got investment. You make a good point, Graham. And I always, whenever I'm talking to founders, I always like kind of reminding them or re-emphasizing the definition of a startup and how that compares to the definition of a small business. Because certainly there's a lot of times where you speak to a founder and they're pitching you their idea and they're saying, hey, I'm always struggling to get capital and raise for my company. And then you actually hear the pitch and you realize you're a small business, you're not a startup. So there actually isn't any investors that this angel group that's going to, that's going to invest in your deal in the first place. So just quickly for everyone, small business is basically any local small business. So if you're tackling a localized or a smaller problem, if you don't have a unique differentiator from your competitors, so like if you're a restaurant or a grocery store, or a bar or just a clothing shop or something like that. A startup specifically needs to be typically a tech driven company that's going to aim for rapid scaling. You're tackling over a billion dollar sized market. You have a unique differentiator that will clearly separate you. And it's not just a list of perks or things that your business does, but an actual unique differentiator from your competitors and you're built and structured with investors in mind. So you're planning on raising capital to fuel this rapid growth with clearly defined exit to generate return for those investors at the end. A lot of people are saying, you know, I'm starting this company, but I don't ever want to exit or I'm running this business and it's a cool thing, but it's not a tech driven startup. It's not highly scalable. And they're saying, you know, I've come to hundreds of events and I pitched all the time and nobody funds me. It's like, These investors, angel investors, this whole activity, this ecosystem is designed around tech driven startups. You go to angels first and then to venture capital and then on to private equity. And all the way along, you've got the great grant program and everything like that. It's built around technology development for exactly what you said, Graham, about sort of groundbreaking problem solving, which which is sort of what the industry is looking for. I'll just add that, Alex, I completely agree with what you're saying, but I think it's not just tech, but it's anything that can scale to thirty X over a five year period. Right. And that isn't always tech, but it tends to be mostly tech. Right. Right. Thank you for that correction. No, you're totally correct. Like I started that I just invested in is not tech at all. So, yeah, just you're totally right. But it has to have the ability to scale rapidly. That's the key. And of course, sometimes founders are like, well, we need two years worth of funding. We're going to be profitable in six months. It's like, well, sometimes it just doesn't make sense what is being asked for. And so you need that. You're right. There's that progression. There's the gates of funding to scale the venture. And there's only certain type of companies that fit into that category.