The four-year old company runs a software platform for manufacturers to manage their incentive programs such as promotions and rebates and works with more than 75 global manufacturing clients, it said in a news release.

Joining OMERS Ventures (the venture capital arm of the Ontario Municipal Employees System pension plan) in the funding round are Klass Capital and Round 13 Capital, both based in Toronto.

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360incentives, which was named one of Deloitte’s ‘companies to watch’ in the audit and consulting firm’s annual Technology Fast 50 list for Canada in November, has not previously announced any venture backing.

Founder and CEO Jason Atkins said he plans to use the funding to “further develop our technology platform and address new markets.”

The company has about 60 employees and two small secondary offices in Annapolis, Maryland and Los Angeles.

It charges clients a fee of $1.25 per transaction as well as a monthly rate for internal users to manage the platform, which can also handle claim tracking and auditing and tax reporting.

It did not disclose a valuation for the funding round.

Verelo saved from shutting down, acquired by Dyn

Last month Toronto-based website monitoring startup Verelo reportedly emailed users to say it was shutting down after just a few months in business and planned to return its remaining funding to investors (the company was a graduate of Extreme Startups’ first cohort in June).

Around the same time I spoke with Derek Smyth, managing director at OMERS Ventures, for a year-end story looking back at what 2012 meant for startup financing (see below) and he emailed me to add that Verelo was actually a “great story” for the year.

“Great example of ‘sometimes it doesn’t work’ but that’s ok. Realize it and move on,” he said, a sentiment that many in the city’s startup community expressed on Twitter.

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This week it seems Verelo’s story concluded with a happier ending with news that New Hampshire-based Internet infrastructure service company Dyn acquired the young startup.

Dyn said in a blog post that it will offer Verelo’s uptime and performance analytics tools as a free service to its clients.

“This is great news for Verelo as it means our service will continue long into the future,” Verelo CEO Andrew McGrath said in the post. “Dyn will bring a much larger set of resources to our current and future users.”

Terms of the deal were not disclosed.

Mr. McGrath is already involved with another area startup as one of three co-founders of Checkout51, a couponing app that made its public debut last month.

INcubes announces third cohort of companies

Toronto startup incubator INcubes announced its third group of companies at the end of December,

Fabspaces is looking to tap into the education space with a web-based interactive video platform for activity-based workshops; Leaders4NonProfits is working on a web app that provides training for volunteers; and Top That also has a web-based app in the works to let businesses and individual create multimedia challenges and competitions.

INcubes works with startups in very early stages, offering a three-month acceleration program in exchange for 7.5% equity stakes in the companies.

Looking back at 2012

If you’re still in the mood to reflect on the year that was, take a look at this feature from Monday on what 2012 meant for Canadian startup financing, with more U.S. investment, big funds closing, accelerators as “the new black” and what the “Series A Crunch” could mean north of the border.

It was a busy week for the Canadian scene both in Toronto and across the country. The agenda included CIX 2012 (see below) and Extreme Startups’ second demo day in Toronto.

I blogged about Extreme’s demo day here. While I was there, I had the chance to meet Ian Jeffery in person. Ian runs the Montreal accelerator FounderFuel, which announced some news of its own this week with plans to send nine of its portfolio companies down to Silicon Valley for three months to work out of the offices of Plug and Play and Rocketspace.

I also ran into Oleg Gutsol from 500px. He acted as a mentor to MyShoebox, one of Extreme’s five cohort companies that was very complementary to his own photo-based business. 500px just launched its iPhone app on Wednesday and Oleg showed me some beautiful photos (on his iPhone 5, of course).

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The next day I was at the Technicity conference at the Metro Toronto Reference Library where the theme was all things equity-based crowdfunding. Ontario’s minister of economic development and innovation Brad Duguid was on hand to kick things off and signalled the province’s support for changes to securities laws that would make it possible (as long investor protection can be assured). He made it clear that the government doesn’t want to fall behind the U.S. and risk losing startups to our neighbour. But with changes under the JOBS act expected to be in force by mid-2013, and the Ontario Securities Commission still conducting a consultation, it might be overly optimistic to think Ontario could catch up or stay in front. You can read the full story here.

I also spoke with Cindy Gordon, who’s heading up CATA’s Invest CrowdFund Canada, probably one of the more active voices in the country calling for changes to securities laws to permit entrepreneurs to use online platforms to raise small sums from investors absent a prospectus. She told me she thinks the message about the benefits of equity crowdfunding has gotten through and now it’s about crafting the right framework. She was in New Brunswick recently for a conference on the issue that attracted more than 180 participants. Interestingly, she said she believes that Maritime province will be one of the first to push through changes.

Sticking with the subject of raising early-stage capital, earlier this week I spoke with Robert Simon, who is running BDC’s Venture Capital IT Fund. He’s been quietly spending the $150-million committed to the fund and said they’ve spent $50-million so far on 11 investments this year as well as follow-on funding for some past portfolio companies. You can read more about what that fund has been up to here.

After completing a cross-country tour, non-profit Startup Canada held simultaneous press conferences in six cities on Tuesday to reveal its blueprint. Rick Spence, who writes a weekly column for our FP Entrepreneur section, covered it here.

Here’s a look at some other news from the week:

Video interviewing platform Kira Talent closes seed round

The next time you’re being interviewed by a computer, you might have Toronto-based startup Kira Talent to thank. To clarify, Kira is the team behind a cloud-based video interviewing platform that aims to change the way recruiting is done.

The young company (it was founded in March as part of the 2012 Next 36 cohort) is already gaining traction with academic clients.

It has been working with the Rotman School of Management since September and has signed on a few more Canadian schools since then and is in talks with others from Boston, Europe and Hong Kong, said co-founder and CEO Emilie Cushman.

Kira announced the closing of an undisclosed amount of seed funding this week (led by Relay Ventures with participation from a handful of angels) and plans to bulk up its development talent, expanding its original team of two (co-founder Konrad Listwan-Ciesielski is the CTO) to 11 by January.

LeadSift lands $500k seed round

In a move to the East, OMERS Ventures is backing Halifax-based LeadSift with $500,000 for the software startup’s seed round of financing.

The company, which is still conducting beta testing with enterprise clients, uses social media data to generate sales leads. It tracks down consumers looking for information related to clients’ products, using its online tool to analyze that information in real-time.

LeadSift will use the backing from OMERS Ventures (the Toronto-based VC arm of the OMERS pension fund) for product development and to ramp up hiring, it said in a release Tuesday.

CIX crowd picks favourites

Frank & Oak, the startup promoting men’s fashion with a digital twist, got a nod from the audience at the Canadian Innovation Exchange (CIX) in Toronto on Tuesday. The annual event honours innovative companies and the Montreal-based fashion site that designs and makes its own clothes and offers members a monthly recommended selection was named the people’s choice in the digital media category. The venture landed $5-million in series A funding in October.

Jibestream Interactive Media, meanwhile, won the audience’s favour in the information and communication technology category. The Toronto company has developed interactive “wayfinding” technology that helps visitors navigate places like shopping malls and hospitals with greater ease and has worked with clients like Canadian Tire and the Holland Bloorview hospital.

The two Toronto startups that took the honour last year are decidedly on a roll. Wattpad won the first category while Wave Accounting was named audience fave in the second. So good news for this year’s winners?

Holiday cheer from Hailo

As the Toronto taxi-hailing app wars rage on, Hailo is making a bid for Torontonians’ affection with plans to offer $1-million in free cab fares (in $10 increments) over the holiday season in partnership with Molson. It’s an interesting move as Uber seems to be sponsoring almost every event you attend these days. (Uber is based in San Francisco and Hailo is U.K.-based but both have Toronto offices.)

Cloud startups to compete for stint in the Valley

For FounderFuel’s initiative, it is teaming up with the Canadian Consulate General, which was also part of some Calgary news this week. The Canadian Cloud Council and Boast Capital plan to hold a competition at a cloud conference in Banff on March 11 (to be judged by Robert Herjavec, of Dragon’s Den fame). Ten cloud-based startups will pitch to a panel of investors and the winner will head down to the Valley for three months of free office space at Plug and Play. The deadline to apply is Jan. 7.

Communitech celebrates 15 with week-long video series

Finally, Communitech is celebrating 15 years and staff writer Anthony Reinhart has done a series of video interviews with key Waterloo Region entrepreneurs. It’s really well done and you can check it out here. FP Tech Desk’s Matt Hartley took a look at the Jim Balsillie interview here.

In recent trips to Silicon Valley and the San Francisco area, John Ruffolo, chief executive at OMERS Ventures, said he heard constant complaints about hiring and retaining employees.

“One of the challenges for Silicon Valley is there’s a great abundance of talent but the demand is so high it’s outstripping supply,” said Mr. Ruffolo, who heads the venture capital investment arm of the Ontario Municipal Employees Retirement System pension plan.

With hundreds of startups as well as established giants such as Google Inc., Facebook Inc. and Apple Inc. all fighting for tech talent, wage demands and attrition rates are up sharply as a better offer is always just around the corner, he said.

Canada, meanwhile — especially Vancouver, Toronto, Montreal and the Kitchener-Waterloo area, he said —is attractive in part due to its universities bursting with engineering grads.

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The number of Canadian grads working in the Valley — particularly from the University of Waterloo — has also helped to burnish the country’s reputation, Mr. Ruffolo said.

Jimmy Fan, a UW graduate, is vice-president of business operations at San Francisco-based Kontagent Inc. and heads up the company’s Toronto office, which it launched about three years ago. “We realized we could actually hire here and there was a really big untapped talent pool here,” he said.

Kontagent offers a data analytics platform that tracks social applications to provide insight for marketers and enterprise clients, and after a recent Canadian hiring blitz, 20 of its 100 employees are now based in Toronto. Some are computer engineers who do customer-facing work while others are PhD grads doing heavy research and development for the data side of the product, Mr. Fan said.

“We don’t view Toronto as a remote office,” he said. “It’s really the twin headquarters of our company.”

We also had a huge amount of churn in terms of our staff

With high-definition video links set up between its San Francisco and Toronto locations, workers step into a meeting room and easily touch base with colleagues across the continent.

Mr. Fan and Jeff Tseng, the co-founder and chief executive of the company, are grade school friends. Mr. Tseng started the company in 2007 as a hardware startup before changing tacks and pursuing analytics in 2008. The company has raised more than US$17-million in venture capital and it roughly doubled in size in the past year.

When Mr. Tseng started the Toronto office he was having a hard time hiring in the Valley, he said, adding that Canadian tax credits for R&D jobs also made a location north of the border appealing.

“The Toronto team is working on the same things the San Francisco team is,” Mr. Tseng said. “The way to set up remote teams and not have them be disconnected culturally is to have them work on the exact same things.”

Over on the west coast, Sunnyvale, Calif.-based Convergent.io has established a Vancouver office, where 12 of its 20 employees work. Andrew Warfield, a professor at the University of British Columbia, is co-founder and chief technical officer of the company, which is developing a data storage solution using software virtualization.

In a previous startup, which he sold to Citrix Systems Inc. in 2007, he said he went the traditional route of setting up a Palo Alto office and hiring developers, which produced what he called a “mixed result.”

In some ways it’s letting us get the profile of letting people work for a Valley startup but living in Vancouver to do it

“We hired some absolutely phenomenal people and we also hired some people who looked great on paper, were obviously professional interviewees and didn’t actually pan out as well for us over time,” Mr. Warfield said. “We also had a huge amount of churn in terms of our staff. It was really hard to keep the employees that you put effort into.”

After the sale to Citrix, he headed up a software development office in Vancouver before leaving to return to work at UBC.

“When I started the office in Vancouver, one thing I found is it was relatively straightforward to hire really, really strong technical staff,” he said. “There’s also quite a strong tech community in Vancouver. And the loyalty that we get is phenomenal.”

When Mr. Warfield started working on Convergent.io last year, he said he and his partners decided to build the whole engineering component of the venture in Vancouver.

Many people love the lifestyle and want to live in Vancouver but the allure of California can be strong, he said. Landing US$10-million in backing from Andreessen Horrowitz — a well regarded Valley venture firm — last summer helped boost the company’s profile.

“In some ways it’s letting us get the profile of letting people work for a Valley startup but living in Vancouver to do it,” he said.

Milestones

It was a week of milestones for several Canadian startups.

Starting on the west coast, there are now 5 million users on Hootsuite’s social media management platform, the Vancouver startup said on Thursday, adding that those users have sent 1.3 billion messages.

The company, which was one of the OMERS Ventures fund’s first big investments with a $20-million capital infusion in March, now has 230 employees and has been adding new features to its platform regularly. It also opened an office in London.

Maybe it’s the healthy work environment that’s making everyone there so productive. In a blog post to celebrate the 5 million user mark, the company revealed that it has 15 “office dogs.” Jealous.

Over in Kitchener, Ont., Vidyard is now getting 1 million hits per day on its web-video platform that makes it easy for companies to post videos on their own websites.

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CEO Michael Litt said in a blog post that it took the company from September 2011 to April 2012 (about six months) to get to 1 million hits total — an event the team celebrated with cake at the time. Now they’re seeing that many every day.

Finally, in Toronto, Xtreme Labs — which recently received a major investment from Facebook vice-president and founder of the Social+Capital Partnership VC fund Chamath Palihapitiya — is celebrating its five-year birthday throughout November.

The company, which makes mobile and tablet apps for major corporate clients, now has a team of 150 engineers, which is basically a wealth of riches in the increasingly competitive mobile development space.

Funding

Meanwhile, some other Canadian entrepreneurs were busy signing off on the paperwork on funding deals this week.
Starting in Vancouver once again, Pug Pharm Productions Inc. – which offers a customer engagement platform — said it closed a $1-million series A round led by Goal Holdings Group, a venture capital fund also based in Vancouver.

Ottawa’s Privacy Analytics raised an undisclosed amount from the BDC IT Venture Fund and the Capital Angel Network. The company focuses on protecting personal data that its clients collect for analysis and research, working with research, pharma and healthcare businesses to remove identifying information from records.

Launches

Two companies in Toronto accelerator Extreme Startups’ current cohort recently launched their products. Venio’s healthy eating, meal-planning and grocery shopping app is available for iPhone while MyShoebox offers unlimited photo backup for Macs, PCs, iPhone and Android.

In e-commerce news, Loose Button, the Toronto company behind Luxe Box, which delivers a pretty box of high-end sample-size beauty products to subscribers every month, is expanding into apparel with the launch of Pink Beryl that will send customers two pairs of tights for a flat monthly price.

The study, entitled “Can Venture Capital Foster Innovation in Canada? Yes, but Certain Types of Venture Capital Are Better Than Others,” explores the impact each type of venture capital has on Canadian innovation.

The study comes after the federal government recently closed a consultation on how best to bolster the Canadian VC sector through a new $400-million investment announced in the 2012 federal.

The lack of accessible venture capital in Canada is often cited in private and government-backed reports as a prime obstacle to innovation and R&D in the country. In its heyday in the early 2000s, Canadian companies benefited from around $5 billion in domestic and foreign VC investment per year, but the levels of available funding have significantly dropped in the last decade. Last year, Industry Canada reported that Canadian companies saw just over $1.5 billion in VC investment.

The C.D. Howe study found that, on a dollar-for-dollar basis, Canadian VC funds are more closely linked to innovation than are foreign funds and even business R&D dollars. The author of the study, Tariq Fancy, most recently a Principal at the CPP Investment Board in Toronto, suggests that this is perhaps the result of domestic VC firms being more closely involved during the crucial early innovation stages of start-ups.

In order to examine the relationship between VC and innovation, the study measured the link between domestic and foreign VC funds in Ontario, Quebec, Alberta and British Columbia and resulting patent applications between 1996 and 2008.

The study found that private and institutional VC (such as OMERS Ventures) produced the highest levels of innovation, with government funding (such as BDC Ventures) also doing a good job. Corporate VC (such as Rogers Ventures) performed moderately well, while retail, bank and other sources of VC showed little impact on supporting innovation in Canada.

The study’s findings confirm that certain types of VC are in fact highly tied to innovation, thus providing support for the government’s $400-million policy direction. The study does, however, suggest that there should be less emphasis on the size of the VC market versus promoting access to private and institution VC funds for early-stage innovation companies.

The managing director of OMERS Ventures was critiquing the efforts of startup CEOs who had just made demo pitches to a panel of venture capitalists at the event hosted by PricewaterhouseCoopers in Toronto.

Allen Lau, the CEO of the Toronto-based community writing site Wattpad, told the investors about his company’s escalating base of engaged users and after the panel, he and Mr. Gwin agreed to grab a coffee sometime.

At that point, Mr. Lau recounted, he couldn’t disclose the fact that he had already signed a term sheet with San Francisco-based Khosla Ventures, who would become the lead investor in a US$17.3-million round of financing announced just a few weeks later on June 6.

“I couldn’t tell him that until we got very close,” Mr. Lau said. “It was days before [the round was announced] when I spoke to Howard at OMERS and got serious.”

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OMERS Ventures, the venture capital investment arm of the Ontario Municipal Employees Retirement Service, was part of Wattpad’s June investment, the two announced Tuesday.

Its participation was not disclosed until now because it was such a late addition and the paperwork was done separately.

“OMERS definitely pursued us, but the fact is that we want investors who can help us,” Mr. Lau said, noting that his Silicon Valley backers as well as New York-based Union Square Ventures, which is also an investor, give Wattpad good geographic coverage in the United States.

“The ones that you hope to fund are the ones that are the hardest to get,” Mr. Gwin said of his pursuit of place in Wattpad’s syndicate of investors.

He said he was attracted by Mr. Lau’s ability to build a large base of users who spend a lot of time on the site without “spending millions and millions of dollars to get where he’s gotten to.”

“It’s a very efficiently run company,” Mr. Gwin said, adding that Wattpad didn’t need the funding to survive but now has some room to pursue different monetization strategies without going back to the market for more backing any time soon.

Mr. Lau said he hopes OMERS — which has connections with many of the accelerator programs in the province — can help Wattpad recruit talented workers in the Toronto and Waterloo, Ont. areas potentially through acquisitions of small startups, which could be useful for both their technologies as well as their teams.

The company has 25 employees and is hoping to double that in the next year as it works to keep up with both the product development and community management needs of the site.

It now claims 10 million monthly unique users, who spent a total of 2.4 billion minutes in August reading and writing other users’ work on the site, which features a generous amount of fan fiction and romance.

Wattpad did not disclose the amount of OMERS Ventures’ investment in the US$17.3-million series B round but Mr. Lau said it was made based on the same valuation as the other investors in the round, which included Khosla and Yahoo! co-founder Jerry Yang.

Union Square and Toronto’s Golden Venture Partners — which participated in Wattpad’s US$3.5-million series A round in September 2011 — were also part of the June financing.

The stake in Wattpad will be a smaller addition to some of the hefty cheques OMERS Ventures has signed since the $180-million fund was launched last October.

The venture capital fund has invested $20-million in Hootsuite Media Inc., $16-million in BuildDirect and $20-million in Vision Critical Communications Inc.

At the beginning of the month OMERS Ventures took part in Kitchener, Ont.-based Desire2Learn Inc.’s $80-million first round of outside financing.

Word of the new fund comes after Canada’s Venture Capital and Private Equity Association reported in August that VC fundraising in the country totalled $1.4-billion in the first six months of 2012.

That’s more than triple the $460-million committed to funds in the first half of 2011, the CVCA said.

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Rho Canada and Celtic House Venture Partners announced first closings of funds in the $100-million range earlier this year.

Wellington has raised three funds in the past and its third fund was capitalized with $150-million in 2006 and invested a total of $300-million through 52 loans since then.

The firm’s funds typically provide loans to startups that are already backed by venture capital equity investments.

Although its investors are Canadian institutions, pension funds and wealthy individuals, the majority of its investments have been south of the border, with 20 of its last 25 deals going to U.S.-based companies.

The firm also has plans to open a second California office, adding a Palo Alto location to its existing Santa Monica office.

One of its Canadian portfolio companies, technology-based market research firm Vision Critical Communications Inc., landed a $20-million round of funding in August from OMERS Ventures, the venture capital investment arm of the Ontario Municipal Employees Retirement System pension.

Salah satu penyedia alat pengajaran online yang sangat berhasil dimana usaha tsb sudah menguntungkan adalah Desire2Learn. Perusahaan startup ini dibangun tahun 1999 dan berbasis di kota Waterloo, Ontario, Kanada, yang dikenal sebagai tempat kelahiran perusahaan pelopor ponsel pintar Research In Motion Ltd (RIM), si pencipta BlackBerry. Startup ini sudah berhasil mengaet 700 pelanggan dan melayani 8 juta siswa di seluruh dunia, dari kelas SD, SMP, SMA, perguruan tinggi, sekolah ketrampilan, dan latihan untuk perusahaan besar seperti yang terdaftar di Fortune 1000. Kebanyakan pelanggan berada di Amerika dengan populasi tertinggi berlokasi di New York. Karena bisnis penyedia alat pendidikan online semakin maju, saat ini jumlah pegawai ada sekitar 500-an, dibandingkan awal tahun masih sekitar 300-an. Selain berkantor di Kanada dan Amerika, Desire2Learn memiliki beberapa cabang yang dilengkapi dengan personil, antara lain di Eropa, Australia, Brazil dan Singapura.

Hari ini Desire2Learn mengumumkan bahwa perusahaan startup ini sudah menerima dana ventura sebesar $80 juta dollar. Tim kerja Desire2Learn boleh berbangga karena jumlah uang sebanyak ini merupakan suatu gebrakan di arena perangkat lunak dimana investasi ini termasuk yang terbesar yang pernah diberikan kepada perusahaan berbasis di Kanada. Uang investasi itu akan digunakan untuk menambah pegawai baru, tenaga teknisi, memperluas pemasaran dan meningkatkan penelitian. Dana segar ini juga akan dipakai untuk mengembangkan teknologi inovasi baru yang bisa meningkatkan kualitas pendidikan.

Pemberi modal untuk putaran pertama (Seri A) terdiri dari dua institusi yaitu New Enterprise Associates (NEA) dan OMERS Ventures. NEA adalah pemodal ventura terkemuka yang memiliki aset sekitar $13 miliar dollar yang berkantor di Washington, DC, Silicon Valley, dan New York City. Juga ada beberapa kantor yang tersebar di Asia termasuk di India di kota Bangalore dan Mumbai, dan di China, di kota Beijing dan Shanghai. Sedangkan OMERS adalah pemodal ventura yang merupakan gabungan dana pensiun terbesar di Kanada dengan aset lebih dari $55 miliar dollar.

(Logo: Desire2Learn)

But after more than a decade of going it alone, the company on Tuesday said it had raised $80 million from Menlo Park-based New Enterprise Associates and OMERS Ventures, the venture capital arm of OMERS, one of Canada’s biggest pension funds.

Why now?  “The demand for online learning, mobile [learning], analytics and education globally has never been greater than it is today,” John Baker, the company’s president and CEO, said in an interview.

Desire2Learn was a profitable, high-growth firm before the funding, he said, but given increasing interest from institutions and students in digital learning platforms that provide more social and mobile experiences, analytics and other features, the company decided to step on the gas.

With the new funding, Desire2Learn, which competes with companies like Blackboard to provide an online learning platform to K-12 and higher education schools, plans to accelerate global expansion and research and development, Baker said. The company has a strong U.S. customer base, including the New York City Department of Education, Michigan State University and other major education networks. It also has staff worldwide, including Singapore, Brazil, the Netherlands and the U.K., and plans to increase its presence in South America and the U.K.

As we’ve previously reported, investment in education technology, particularly in K-12, has been hitting new highs. According to GSV Advisors, a Chicago-based investment firm that specializes in education, investment volume in 2011 exceeded the peak from the 1999-2000 boom.

The rise of cloud-based, social and mobile platforms, changing policies at federal and local levels and the demand for data and analytics around student performance and engagement are driving interest in new approaches to learning. And, even though the sector has historically struggled to attract funding, investors are starting to see opportunity in the impending shift and new business models that don’t necessarily rely on selling directly to school districts and institutions. In addition to its recent investment in Desire2Learn, NEA, for example, has invested in online course startup Coursera and social learning platform Edmodo.

The uptick in interest in the space means that older companies like Desire2Learn are getting new competition from startups like Lore (which launched as a clear BlackBoard competitor but is now more focused on social learning) and Chegg, the textbook rental company which is now positioning itself as a broader hub for student learning. But its multi-platform approach, strong client base (of 700 institutions and organizations) and long-standing partnerships — as well as new ones — could serve it well.

On Tuesday, Kitchener, Ont.-based Desire2Learn announced a massive venture capital investment of $80-million, in a funding round backed by OMERS Ventures and U.S. venture fund New Enterprise Associates.

Mr. Baker said in an interview that he felt more comfortable bootstrapping his business over the years because he “wanted to build an enduring company.”

But, he said, the capital injection should accelerate the growth of his already profitable venture and make it easier to attract top talent (he’s looking to add another 170 employees to his team).

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“Why now is really based on the fact that we’re seeing a lot of transformation happening in the education space,” Mr. Baker said. “I personally have never seen more demand for higher education or education in general.”

In the last year or so, interest in so-called “massive open online courses” has taken off, with millions of users signing up to take free classes from top-name educational institutions in partnership with startups like Coursera, Udacity and edX.

Mr. Baker said that is just one element of what’s happening with online learning.

“I think what’s more telling is the fact that more of the traditional online courses being provided by the University of Guelph or Waterloo are growing in some cases 40%, 50% year over year.”

Desire2Learn said it has 700 clients, with about 80% of its business coming from the United States, and will use the funding to help boost its customer service and cloud infrastructure as it continues to push into global markets.

For his part, Howard Gwin, managing director of OMERS Ventures, the venture capital arm of the Ontario Municipal Employees Retirement System, said Desire2Learn is “one of those rare companies that can really make a global impact,” and can scale past even $1-billion in revenues — something that’s even more unusual to find in a business that has been bootstrapped to this point.

“The firm’s been courted by everyone because of its size. We looked at it and said, ‘This could be one of those half-dozen Canadian companies today that could be the next Cognos, which creates kind of a global impact,’” he said.

The amount of OMERS Ventures’ and NEA’s respective investments was not disclosed, but Mr. Gwin said, “it’s a substantial dollar figure from both firms.”

He and the investment team at OMERS Ventures have made several high-profile, large investments since the $180-million fund was launched last October.

Until now, the heftiest cheques have landed on the west coast, with $20-million in backing for Hootsuite Media Inc. announced in March, $16-million in BuildDirect in June and $20-million for Vision Critical Communications Inc. announced last week.

All three are Vancouver-based companies with enterprise software solutions, something Mr. Gwin and Derek Smyth, also managing director at OMERS Ventures, have a background in.

“We’re trying to identify the few companies — it’s not hundreds — that with a significant amount of dollars in treasury, will be able to scale in an aggressive fashion, and that’s the case with Vision Critical, Build Direct and Desire2Learn, where the cheque size is significant,” Mr. Gwin said.

Vision Critical took $20 million to build out its community panel platform which administers customer surveys and facilities two-way communication between organizations and consumers.

Businesses can use Vision Critical’s products to engage with their customers, receive feedback, and provide customer service support. The program can be used to conduct research as well as a way to implement the findings. These tools strive to put the personal “why” into “big data.”

Take Banana Republic, which used Vision Critical software to form a panel of 50,000 shoppers. By administering surveys, asking questions, and dialoguing about the fashion line, the clothing chain was able to learn more about their customers. It used the answers to stay on top of trends, make design choices, and enhance the in-store experience.

The company serves over 600 companies across the travel, tech & telecom, health, media, and retail industries. Big-name customers include Yahoo, NASCAR, Nature’s Path, JetBlue, and Lonely Planet.

With this financial support, Vision Critical will introduce new product lines and expand into more markets around the world. The investment was made by OMERS Ventures, the venture capital arm of OMERS, a large Canadian pension fund.

Vision Critical is based in Cananda and has offices in North America, Europe, Asia, and Australia. It was founded in 2000. This is its second round of funding.

The venture capital investment arm of the Ontario Municipal Employees Retirement System pension announced the funding Tuesday.

Andrew Reid founded Vancouver-based Vision Critical in 2000 and his father Angus joined the business in 2004 after selling Angus Reid Group to Ipsos SA of France in 2000 (now known as Ipsos Reid).

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The firm mixes market research with software to support online panels of survey participants and already has more than 600 clients as well as more than 500 employees, according to its website.

The senior Mr. Reid, now the chairman of Vision Critical, said there is a growing demand for strategic and consumer market research and “online community panels are already established as the key to unlocking the tremendous power of the internet as a tool for two-way communications with consumers.”

The company plans to use the investment — for which no valuation was disclosed — to expand product lines and pursue global growth.

The $180-milion OMERS Ventures fund was established in October 2011.

In addition to participating in some early-stage funding rounds, it has made a handful of large, later-stage investments, including $20-million for Vancouver’s social media darling HootSuite Media Inc. in March and June’s $16-million in internet building material supplier BuildDirect, also based in Vancouver.

Go big or go home. For John Ruffolo, the CEO of OMERS Ventures, to secure funding for innovation, you need a bold vision — incremental change just isn’t good enough. OMERS, which is one of Canada’s largest pension funds, with $55 billion in assets, is committed to investing in innovation that contributes to a vibrant Canadian knowledge economy. But why the focus on having an adventurous vision? Ruffolo says that “We are at a tremendously exciting time. Technology is evolving like never before; we are experiencing a collision of mobile technologies, cloud technologies and social technologies. The power and potential for innovation that creates for Canada’s economy is unprecedented”. Understandably, OMERS Ventures, which has invested in game-changing products such as Hootsuite, sees a lot of businesses seeking investment in new products. To effectively harness the best opportunities, they have developed a disciplined approach for evaluating ideas. Ruffolo continues, “The products that excel truly push the envelope. But doing so often requires applying a long-term and iterative view of how products evolve”.

Validate the product’s configuration. Because new technologies have dramatically driven down the cost of developing new products, you can find yourself under tight time constrains and in fierce competition with other innovators for limited funding dollars. Ultimately, those companies that can bring their products to the right market quickly are far more successful than “second-ins”. The challenge is that product innovators often find themselves in endless meetings or development cycles in the quest for the perfect set of features and functions. Robert Simon, managing partner 0f IT Venture Fund at BDC, says, “focusing on the minutiae of product features becomes a losing position if you are seeking investment”. Simon, whose fund was a leading investor in the world-class software Radian6, evaluates hundreds of business innovations and would rather see products that focus on ”a minimum set of configuration requirements”. In other words, when you are building or shopping a prototype of a product to investors, Simon recommends: “Only include those items that allow the product to successfully address the problem that it needs to solve”. Over time, you can introduce new features, or seek funding for different product versions.

Validate the market. For investors, great product ideas come and go. But, if you have a validated product idea and a validated product configuration, you still need to demonstrate that there is demand for your innovation. “That demand has to be real and it should have strong potential for growth,” says Arlene Dickinson, president of Venture Communications and perhaps best known as the compassionate and business-astute investor on the panel show Dragons’ Den. To successfully validate demand for your product means engaging representatives of your target market throughout the development of your product — from initial concept, through creating a pilot, refining product features, launching the product and evaluating the product’s success.

Be in step with the changing investment world. With every generation, the focus of investment evolves. As President and CEO of the Ontario Capital Growth Corporation (OCGC), John Marshall manages Ontario’s Venture Capital and Emerging Technologies funds. That means he has a unique and panoramic view of where money is being invested. Marshall suggests that several elements are contributing to the way that products are evolving and receiving funding. For example, the widespread adoption of social tools (e.g LinkedIn and Facebook), supportive organizations (e.g Waterloo’s Communitech Hub and MaRS) and programs (e.g. Hyperdrive and JOLT) means “There’s support for innovation, dynamic new networks and a renewed appreciation for the power of communities”.  As a result, products that aim to chip away at some of Canada’s most difficult problems — e.g. medical, environmental, and social — are surfacing more frequently”.

The launch of dozens of business incubators over the last 18 months is further evidence that the structures for funding product innovation have evolved. Dickinson contends that “shaping the investment landscape is critical for enabling Canadian innovation to thrive”. To ensure that is possible, Dickinson is launching a dynamic new “ecosystem” of support that challenges the traditional investment model. She continues: “The current investment model discourages product innovation because it aims to force entrepreneurs and those with great product ideas to fit into a business person mould”. If you’re seeking investment in your product innovation, hers is an alternative. Dickinson concludes, “In our new approach, we nurture the inspiration behind great products so that they can succeed rather than burning them out”.

Over the past 15 years Andrew Brown has brought to market more than 150 products in the hi-tech, financial and professional sectors by creating corporate-wide marketing plans that engage customers. He has written more than 300 articles on product innovation, marketing strategies and strategic alliances.

Simon Brightman is a senior product executive with experience leading multiple, innovative e-commerce teams and bringing products to market for more than 10 years. He is the co-founder of the new product incubator, The Product Accelerators and serves as the Director of Product Management (Loyalty Currencies) at Points International, overseeing the firm’s $150M (B2B and B2C) loyalty marketing product line.

Hopper says the Ontario Municipal Employees Retirement Service is leading the latest $12-million investment round that also includes Brightspark Ventures and Atlas Venture.

As well, Derek Smyth, managing director of OMERS Ventures, is joining the Hopper board as a director.

The latest investment brings Hopper’s total amount raised to $22 million, including previous investments from Brightspark and Atlas.

“It’s really important to OMERS Ventures that we are leading a significant round of financing for a company like Hopper that has the strong potential to be a game-changer in its industry,” Smyth said in a statement.

“Hopper’s management team is world-class, with the big data expertise required to completely revolutionize the way customers discover and book their online travel. Hopper is exactly the kind of company we look to partner with over the long term as it disrupts an entire industry.”

The company hopes to win customers by simplifying travel planning on the Internet, where it says gathering widely scattered information can be both time-consuming and difficult.

“Hopper has already crawled more than half a billion pages of travel data, with plans to double that by the end of the year, making it the largest travel database in the world,” the company said.

“This funding round will further the company’s goal of using big data to take the frustration out of trip planning and make travel search smarter.”

OMERS is one of Canada’s largest pension funds with over $55 billion in net assets, providing pension administration services to 420,000 members, one in every 20 workers in Ontario.

Hopper seeks to simplify travel planning. Preparing for a vacation is generally the most unpleasant part of a trip. Slogging through flight searches, price comparisons, hotel reviews, and barrages of travel advice are enough to make you … need a vacation.

This company may be one amongst hoards of apps trying to make the trip planning experience easier, but  it has a couple of interesting things going for it.

One, it was founded in 2007 and has yet to launch.  After five years in stealth mode, Hopper seems more like an undercover agent than a startup.

Two, Hopper has managed to raise a total of $22 million. The Boston-based company announced today that it has raised $12 million led by OMERS Ventures, with participation from existing investors Brightspark Ventures and Atlas Venture, which previously gave money for this undertaking in 2011.

Three, CEO Frederic Lalonde was formerly a VP at Expedia, and his fellow executives also have extensive backgrounds in the travel sector.

Four, Hopper is taking a big data approach to addressing the throbbing pain point that is trip planning.

“Planning a trip can be tedious and frustrating,” said Lalonde in a statement. “At Hopper, we are working hard to transform this process and bring the joy and inspiration back to travel planning.”

Over the past five years, the team has collected more than half a billion pages of data, with plans to hit a billon by the end of the year. This wealth of knowledge will allegedly constitute the largest travel database in the world. Hopper intends to use data analytics to transform the chaotic pool of information into a searchable, manageable, navigable form.

If it ever emerges out of beta, Hopper may do for travel planning what Google did for search.

Just like a spy, Hopper has substantial institutional backing, significant resources, international operations, and is interested in securing in information. The exact nature of the project is classified and only accessible to eyes with express permission.

They say the world is a big, scary place, but not as big or scary as trying to plan a trip around it. This top secret startup should emerge from the cloak of darkness later this year.

Contrary to rumors, social media startup Hootsuite is not actively raising another round — but if it were, its price tag would be even higher than reported.

We had a nice chat yesterday with Hootsuite CEO and founder Ryan Holmes. He told us that Hootsuite, which raised $20 million from Omers Ventures in March, was already considering another raise in May.

However, Holmes said, the hunt for cash has cooled off a bit, but the valuation has gone up.

Hootsuite makes a web-based tool that individuals and companies can use to manage updates to social networks, including Twitter, Facebook, and Google+. It competes with Tweetdeck (which got acquired by Twitter), Buddy Media, Wildfyre, and Cotweet (which got acquired by ExactTarget in 2010). Unlike most of its competitors, it uses a “freemium” model: Hootsuite is free for individuals to use, but the company charges monthly fees for companies who want to deploy it to teams of people.

We asked Holmes point-blank if his company was really worth $500 million.

“I’m always talking to VCs, giving them updates,” he told us. “I was looking at doing a raise, and at that point that would have been a fair valuation. … Given some of the comparables in the market, at that point, we would have warranted that kind of valuation.”

(We reached out to a slew of VCs on this point; all declined to comment on Hootsuite’s possible valuation.)

But, Holmes continued, things have changed since then. The startup beat its $10 million revenue forecast for 2011 by a cool million, and it’s also on track to smash 2012 projections by a “significant” margin, said Holmes.

“We’ve been having some really big growth. … I think we’ve moved beyond [the half-billion-dollar valuation]. We’ve created a business with a higher valuation at this point.”

Holmes continued to say that the startup hasn’t been knocking too loudly on the door of Sand Hill Road since this spring. “The company is highly profitable, and it doesn’t really need the money at this point,” he said. “There are a lot of acquisitions happening, a lot of positioning in the market.”

Hootsuite’s investors are not Silicon Valley-based. Besides Omers Ventures, other major investors include Blumberg Capital and Hearst Ventures, the venture capital arm of the Hearst Corporation.

Did the Twitter API change kill the deal?

If “we don’t need no stinkin’ money” and “we’re worth more than that, anyway” sound like sour grapes to you, it did to us at first, too.

One big shake-up in the market is the recent upset over Twitter’s API changes. In fact, given the timing of the funding rumors and Twitter’s most recent “thou shalt not misuse our API” blog post, we wondered if the stern language from Twitter had put investors off on Hootsuite’s funding deal.

After all, Hootsuite’s product depends very heavily on Twitter’s API. And while Hootsuite incorporates Facebook and Google+ features into its product, it is very much a client — precisely the kind of client that Twitter has repeatedly asked third-party developers not to build. Repeatedly. Twitter dev ombudsman-in-chief Ryan Sarver laid down the law in a controversial memo last March, and the company’s intentions were further illuminated in an in-depth VentureBeat interview late last year.

But Holmes told us not to worry ourselves on his account; he and the Hootsuite team remain in close contact with the higher-ups at Twitter, and the API changes didn’t scare off any VCs.

“That fear around Twitter’s API and ecosystem, I absolutely don’t think it has hurt us,” he said. “We have it on very good authority that the product we’re building out is not in conflict with their roadmap.”

That communication is all important in the increasingly uncertain Twitter ecosystem. As repeat entrepreneur Loic Le Meur told me in an interview, “There are two types of Twitter apps: The ones Twitter likes, and the ones that are competitive and don’t have good communication with them.”

Basically, Holmes contends (more or less correctly) that Twitter is looking to take down consumer-facing Twitter clients and other products that strip the tweetstream of money-making promoted profiles, trends, and tweets, which ultimately pay to keep the lights on at Twitter HQ. Hootsuite, like many of the apps on Twitter’s good side, caters mostly to non-consumer users, so it’s not a threat to Twitter.

“Our userbase is small, medium, and enterprise businesses; that’s what we focus on,” said Holmes. “We’ve never focused on being a consumer product; we have a lot more functionality than a consumer needs.”

Late last year, when we asked Twitter’s Sarver for Twitter-based business ideas that were safe bets, he said, “Analytics is a huge sector for us, obviously, finding those insights you can bring to brands using this real-time corpus of data.” He also talked about curation (“finding the key tweets to talk about events that are happening, be that the elections, the Olympics, etc.”) and publishing (“figuring out the right content that will resonate with the audience”). And Hootsuite does focus on those areas, to a great extent.

Still, Hootsuite’s unique freemium model means that it’s still a highly-favored Twitter client among power users, meaning consumers. And there may come a day when Twitter decides to cut off that type of access entirely.

If that ever happened — that is, in a dystopian, nightmarish future wherein Twitter only gave read/write API access to enterprise apps — Hootsuite’s freemium product would have to omit Twitter from its services. If this seems like an unlikely scenario, keep in mind that Twitter restricting API access in the first place once seemed unlikely, too. Since then, API changes have killed off at least a few companies.

“I think it would take away the vibrancy of our product,” Holmes said of an unlikely-but-possible Twitter pull-out. “Twitter and Facebook are the biggest social networks for our users.”

And ultimately, the entrepreneur concluded, “I want to see Twitter’s API do well.”

And Twitter’s API will do well when developers heed the ever-less-subtle warnings from Twitter: Don’t, they repeat, do not make Twitter clients. Don’t take “promoted” content out of the stream. It’s going to be Twitter’s bread and butter within the next couple years, after all.

“It’s important to us that third parties have access to the data,” said Twitter CEO Costolo in a press meeting last fall. “I get a million emails a day about what Twitter could be doing to make more money, but … the advertising business will sustain us. We have no intention to scale the data licensing business. We’re just going to focus on scaling the advertising business.”

And as long as devs stay out of Twitter’s way when it comes to ads, they stand a decent chance of survival.

The infusion comes from OMERS Ventures, the venture capital arm of the Ontario Municipal Employees Retirement System.

The Vancouver-based company, founded in 1999, sells heavy-weight building materials exclusively over the internet to professional builders as well as do-it-yourselfers.

[np-related]

Over the years it has developed a technology platform that calculates the increased cost of delivering heavy goods and predicts supply chain issues like which products will be a hit with customers.

“We’re a technology company that uses data to create long-term, win-win relationships,” said Jeff Booth, CEO and co-founder.

BuildDirect said in a statement it will use the funds to expand both its team and product line.

“We’re attracted to the opportunity BuildDirect has created to capitalize on the untapped potential of the e-commerce market, as well as the future growth of both the building supply market and adjacent categories,” said Derek Smyth, managing director of OMERS Ventures.

The round includes $1.5-million in backing from OMERS Ventures (the venture capital investment arm of the Ontario Municipal Employees Retirement System pension fund) the MaRS Investment Accelerator Fund, and Points International Ltd. Unnamed investors are putting in a further $750,000.

The parties did not disclose a valuation or a breakdown of the investment amounts.

The Waterloo, Ont.-based startup offers points and rewards software that plugs into merchants’ online shopping cart platforms, a business that evolved out of an earlier e-commerce consulting company the team launched about three years ago.

“First Sweet Tooth was a side project but it started to pick up traction and popularity so we pivoted our complete focus to Sweet Tooth and focusing on customer loyalty and retention,” said Jay El-Kaake, founder and chief executive.

[np-related]

Since re-focusing solely on building its customer loyalty business, Sweet Tooth has grown from three employees last year to 27 now.

The financing will allow the company to expand its software to more platforms — until now it has worked exclusively with  Magento Inc.’s open source e-commerce platform — and tweak its pricing model from fixed prices to a success-driven model that includes a “freemium” plan where customers only pay once they surpass a certain level of use.

Sweet Tooth has about 1,500 clients, including some big names like Delta Air Lines Inc., and has been adding about 100 customers a month, Mr. El-Kaake said, adding that he hopes to increase its client list to between 10,000 and 30,000 clients within the next three years.

The startup’s customer growth was one factor that attracted Derek Smyth’s attention. The managing director of OMERS Ventures said he met the Sweet Tooth team a few years ago and has been following their progress ever since.

“The bigger picture is electronic commerce is a market that’s still very immature and we think there’s a ton of opportunity to deliver a whole suite of solutions to small and midsize e-commerce sites of which there are tens of thousands around the world and build a really big company out of it,” Mr. Smyth said.

Hootsuite is headquartered in Vancouver and has grown from 25 people last year to a team of 140, with plans to expand to 250 this year. This mirrors the growth trajectory of its competitor Buddy Media in New York, which recently moved into new offices to accommodate its rapidly expanding staff, and raised $54 million dollars.

The power of Hootsuite is that it allows companies to execute their social media campaigns across multiple networks from a single, simple dashboard. As diverse  networks come to play a role in business –Facebook, Twitter, Linkedin, Tumblr, Google+, Pinterest, the list goes on — companies need more help than ever.

HootSuite was founded in 2008 and its major investors include Blumberg Capital and Hearst Ventures, the venture capital arm of the Hearst Corporation.

OMERS Ventures, a $180-million fund established by the Ontario Municipal Employees Retirement System last fall, said Thursday it has picked HootSuite Media Inc. as its first major funding recipient. Since launching in October 2011, the fund has made only two smaller investments, both in the Toronto area.

The money will help Ryan Holmes, founding chief executive of the four-year-old social media management platform provider achieve his dream of building a $1-billion company while instilling hope among insiders that the cash drought that has long besieged Canada’s venture capital industry may finally be ending.[np-related]

“We expect this to be the first of many deals that we do — deals that U.S. VCs are trying to get into — as we work to seek out the best opportunities in Canada,” said Derek Smyth, managing director of OMERS Ventures.

“A lot of times you’ll hear in Canada that companies sell too early and too small and sometimes that is because the founders feel like they need to get some security before they can really get aggressive and swing for the fences. So a transaction like this allows them to receive a bit of capital for the work they’ve done to date and puts them in a position where they can feel very comfortable staying strong and building the next billion-dollar business.”

The goal echoes a statement Mr. Holmes gave to B.C. Business earlier this year, when he told the magazine he wanted to “build a billion-dollar company and take it to an IPO [or other] exit, enable the financial independence of 50 people around me and build something disruptive, like how Netflix disrupted the traditional movie rental industry or how Apple rewrote music.”

It also reflects the type of business plan OMERS Ventures likes best, as the fund’s chief executive John Ruffolo told the Financial Post shortly after launch: “Really for the first time in the last 10 years, we will come in early but stay with you all the way through all of your financing all the way to your ultimate exit and [initial public offering].”

OMERS sought out HootSuite, which already boasts nearly $5-million in funding and was recently rumoured to be a Facebook Inc. acquisition candidate, after scouring North America — “not just Canada,” notes Mr. Smyth — for firms helping companies with social Web integration. “And HootSuite rose to the top,” he said.

With more than one billion messages now being sent through HootSuite’s dashboard every day and major corporate clients including PepsiCo and News Corp., Mr. Holmes now stands an even better chance of achieving his ambitious objective.

“I’ve basically just de-risked myself so now we can go for the bigger win [and] it aligns us to go for that billion-dollar valuation we want,” Mr. Holmes said in an interview, adding OMERS’ investment gives the fund less than 10% control over his company.

“We achieved a valuation in the hundreds of millions [of dollars] with this round [and] depending on certain multiples we may hit [$1-billion] this year, we may hit it next year.”

Mr. Holmes declined to provide details on possible plans for an initial public offering.

Beyond HootSuite, the investment gives startup owners across Canada reason to believe the country’s long-suffering financing ecosystem is starting to heal. Richard Remillard, executive director of the Canadian Venture Capital and Private Equity Association (CVCA), notes the amount is 10 times the $2-million average in Canada and even doubles the $9-million amount typically committed by VC firms in the United States.

“That is one of the challenges we are facing with this capital drought is that the moment [our portfolio companies] close a funding round they have to start their next funding round. So $20-million is a great big chunk of change that should help address that challenge,” he said.

“There have been some indicators of little grass shoots and greenery popping up and this is definitely one of them.”

But third-quarter Canadian merger and acquisition activity was up slightly compared to the same period in 2010, according to a report from PricewaterhouseCoopers (PwC) released Friday.

“It was a confusing quarter. Some signs pointed to a slowing Canadian deal market while others suggested that Canadian M&A was defying gravity,” said the report’s authors Vanessa Iarocci and Bradley Romain.

There were 756 deals worth $50.7-billion announced in the quarter, an 8% jump in deal volume and a 1% increase in total value compared to Q3 2010.

This is a slip from the second quarter of 2011, which enjoyed 836 Canadian M&A announcements worth close to $57-billion, PwC said.

Plus, spending in the quarter was largely held up by pension funds and big financial institutions.

“Excluding a small number of large Canadian pension fund deals, the value of Q3 M&A activity was 25% lower than Q2 (also excluding pension fund activity),” the authors said.

Canadian pension funds were involved in deals worth more than $15-billion, up 40% from the second quarter.

Meanwhile, big transactions in the materials sector, traditionally a deal leader for Canadian M&A activity, were down in the quarter.

“An absence of ‘mega deals’ in base metals and ores drove down quarter-over-quarter deal values in the materials sector by close to 66%,” the authors said.

“While most miners remain bullish about the long-term fundamentals of the mining sector, recent uncertainties about emerging market resource demand have prompted miners at the upper end of the market to put acquisition plans on hold.”

Mega deals, worth more than $1-billion, represented just 0.94% of the deals done in the quarter, but accounted for 59% of total deal values.

Middle-market deals worth from $100-million to $500-million were down in the quarter as transaction volume in the energy and consumer discretionary sectors fell.

Deals worth less than $100-million or those with no value disclosed accounted for 92% of all deals announced.

“This fact was not lost on buyers as we observed a number of firms entering the so-called “angel capital” sphere,” said the authors, pointing to the recent launch of OMERS Ventures, the venture capital arm of the Ontario pension fund.

When the dot-com bubble burst, venture capitalist funds and angel groups worldwide were hit hard. While many have recovered in the ensuing decade, Canada’s startup funding continues to experience a drought.

“We are definitely in a crisis,” said Greg Smith, managing director of Brookfield Financial and president of the Canadian Venture Capital and Private Equity Association (CVCA).

Total VC spending in Canada experienced a 2% year-over-year dip in the last quarter, having fallen steadily since 2001, while fundraising by VC firms suffered a 57% plunge from last year, suggesting the worst is yet to come.

“Fundraising statistics are a leading indicator of future investment levels, so we know that unless something is done radically soon, our investment levels in 2012, 2013 and 2014 are going to be much diminished from where they currently sit,” Mr. Smith said.

“This is a concern for all Canadians because it is about productivity, it is about standard of living, it is about employment and clusters of the economy that are developing.”

Part of the reason Canadian startup funding has continued to languish, while elsewhere they have largely returned to pre-dot-com levels, is because of its comparative youth. The U.S. venture capital industry traces its origins to the postwar boom while Canadian VCs didn’t begin to coalesce as a community until the mid1970s. U.S. VCs have had decades of established relationships with previous successes – even the US$345-billion mobile monarch that Apple Inc. is today began with a US$250,000 investment from Mike Markkula in 1977 – to fall back on when trillions were lost to dot-com flops.

Their northern counterparts, meanwhile, fell with no comparable net to catch them. “We haven’t really recovered our funding base or really developed our success stories, so the institutions like the life insurance companies and banks that were in the industry with us pulled away,” Mr. Smith said.

“We have never really recovered from that.”

To fill the void, Canada’s menagerie of angel investors have stepped up. But there is only so much angel funding to go around, says Bryan Watson, president of the National Angel Capital Organization, and angels by their very definition tend to focus on very early stage or “seed” funding.

“So where we used to invest and then pass the deal along to follow on investors, we’re looking at taking it all the way through now,” he said. “You have to almost assume you’re taking a deal through all by yourself now, which adds another layer of risk.”

Constrained angels and cash-strapped VCs affect the ability of small Canadian businesses to grow. Aldo Baiocchi and his wife co-founded an electric bicycle company about 10 years ago just north of Toronto. Daymak Inc. is now a successful enterprise, expecting sales of the company’s flagship Shadow eBike to surpass 1,000 this year. They could be selling more, Mr. Baiocchi said, if only they could find an investor. “We have more demand but we can’t meet the demand because of financing constraints,” he said. “If somebody wants a guarantee of 200 units per month, for example, and the cycle takes about 75 days to get all the parts in place you have to finance all that in advance, which becomes difficult because Canada is not as competitive as some other countries when it comes to financing.”

“To bring something from design to reality, you need to have backng, otherwise it is pretty tough,” he said.

There is no question startup funding in Canada has been “struggling” for some time, said Gary Goodyear,

Canada’s Minister of State for Science and Technology, who is in charge of the Federal Economic Development Agency for Southern Ontario.

But it is “potentially about to reemerge,” he said. “The ingredients are there, the recipe is a good one, the caution that I have is that we have seen some great incentives for businesses and yet business expenditure on research and development does not pick up and our productivity continues to decline.”

Ottawa has provided motivation in the form of tax credits for angel investments, including Investing in Business Innovation (IBI), in hopes of getting more institutional, corporate and retail investors (known as limited partners) more directly involved in backing those who back startups (read: venture capital firms). Programs like FedDev have also been making direct investments, which would explain why government sources have been accounting for a growing proportion of all VC spending in the past year, the CVCA said.

But public money can only prop up the sector for so long. “The government has done, is doing and will continue to do its part but we need an urgent call if you will to businesses,” Mr. Goodyear said. “This is really up to the private sector.”

In an age where all one needs to get a business off the ground is an Internet connection and perhaps some Web design experience, Richard Brooks argues scarce seed funding is not the problem. After 15 years of providing legal advice to startups, the Toronto-based lawyer is preparing to launch his own legalsoftware startup next month, but expects any funding problems to come much later.

“I don’t think [less funding] is such a bad thing from an early stage because it makes companies be a little more focused on how they’re spending their money,” he said.

“But as companies start to mature they need a lot of capital and the vacuum there needs to be filled.”

Even those few Canadian firms lucky enough to land domestic dollars end up getting acquired by larger entities, often from the United States, before they’ve had a chance to fully mature.

“So if you have a fundraising challenge, [you] can only take the company so far before actually being forced to exit, which is a barrier to achieving strong returns,” Brookfield’s Mr. Smith said. “Then it becomes a circular problem where instead of success breeding more success, you’ve got an earlier exit and then those entrepreneurs will likely go where the money is.”

Toronto-based pension fund OMERS, which manages more than $50-billion of investments on behalf of current and former municipal employees in Ontario last week launched OMERS Ventures, a $180-million fund, to massive demand. “Our team has been completely overwhelmed. The number of unsolicited business plans and opportunities has been like a tidal wave,” said John Ruffolo, chief executive the new fund.

While its focus will be on early stage capital, Mr. Ruffolo does not share the propensity to cash out quickly. “We will come in early but stay with you all the way through all of your financing all the way to your ultimate exit and [initial public offering],” he said. “Ideally for us, we don’t care about an exit per say, we call it life cycle investing.”

“Hopefully other capital pools will be joining us and hopefully we’ll be able to reverse the downward trend we’ve seen in the past 10 years.”