Why these tough times are good for Canadian Internet start-ups

These are definitely tough times for start-ups and it is amazing to see how quickly the mood has changed, from continued optimism despite the looming sub prime market meltdown to sheer panic after the stock market sell-out. Since the now-already-famous Sequoia presentation, many start-ups have already reacted by significantly cutting their burn-rate and more cutting is most likely to come. I think however that these tough times might actually be good for Canadian Internet start-ups and we could be coming out stronger from the crisis than before – here are the 3 main reasons for my thinking:

  • Canadian Internet start-ups never had access to abundant venture capital and are therefore operating on a much more competitive cost basis that many Silicon Valley start-ups. Actually, 4 out of the top 5 companies on the Techvibes Canadian start-up index have never raised any venture capital at all and grew organically.
  • The sharp decline of the Canadian dollar (now down over 30% YoY) means an important revenue windfall for all start-ups that get a majority of their revenues in USD (many of our portfolio companies generate over 80% of their topline in USD with minimal costs in that currency).
  • The partly drastic downsizing of Sillicon Valley start-ups means that more talent is available on the market – talent that now might want to look at the opportunity of a different life-work-balance by joining a Canadian Internet-start-ups that tries to build something more long-term and more organically.

It would be great if we could turn this crisis into a major opportunity for the Canadian Internet scene. Some of the stars are definitely aligned.

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