The Capital Markets Institute (“CMI”) and Centre for Innovation Law and Policy
FINANCING NEW VENTURES IN CANADA
Venture Capital and University Innovation
Thursday, October 11, 2001; 4:00 p.m.-6:30 p.m.
The Toronto Stock Exchange, The exchange Tower, 3rd Floor
The fourth roundtable examined how universities, university-based innovators and the venture
capital communities can better cooperate to their mutual financial benefit. Participants were
senior level constituents in the area of financing and commercializing university innovations,
including capital providers, entrepreneurs, academic researchers and government representatives.
Richard Owens, Executive Director, CILAP
Lisa Porlier, Executive Director, CMI
Opening Remarks Provided By:
Andrew Abouchar (www.techcapital.com)
Partner, Tech Capital Partners (Waterloo, ON); formerly Vice President, Working Ventures
Jonathon Rose, PHD (email@example.com)
Edward S. Rogers Senior Professor of Electrical & Computer Engineering, University of Toronto
Co-Director, Altera Toronto Technology Centre; formerly co-founder and President & CEO,
Right Track CAD Corp.
Tino Alavie, PHD (firstname.lastname@example.org)
Founder & CEO, Novx Microsystems Inc.; formerly, Manager, Fiber Optic Smart Structures
Laboratory, University of Toronto (1991-1994) and co-founder and President & CEO,
ElectroPhotonics Corporation (1993-1999).
Peter Allen (email@example.com)
President, Mercator Investments Ltd.
Paul Berg-Dick (firstname.lastname@example.org)
Director, Business Income Tax Division, Department of Finance Canada
Richard Braudo (email@example.com)
Research Associate, Capital Markets Institute/Centre for Innovation Law and Policy
Ted Chudleigh (firstname.lastname@example.org)
MPP, Assistant to the Minister of Economic Development and Trade (Toronto)
Lara Coombs (email@example.com)
Ministry of Economic Trade and Development (Toronto)
Jon Cockerline (firstname.lastname@example.org)
Director, Research Services, Toronto Stock Exchange
Dr. Brian Cox, PHD (email@example.com)
President & CEO, GUARD Inc. (London, ON)
Tony Legault (firstname.lastname@example.org)
Policy Advisor, Ontario Biotechnology Secretariat, Ministry of Energy, Science and Technology
Paul Halpern, PHD (email@example.com)
Associate Director, Capital Markets Institute; TSE Capital Markets Chair and Professor of
Finance, Rotman School of Management, University of Toronto
Paul Harris-Lowe (firstname.lastname@example.org)
Chairman, Greater Peterborough Economic Development Corp. (Ontario)
Investment Advisor, RBC Dominion Securities (Peterborough/Toronto)
Dr. Peter Herman, PHD (email@example.com)
Professor, Electrical & Computer Engineering, University of Toronto
Sheldon Inwentash (firstname.lastname@example.org)
President & CEO, Pinetree Capital Corporation (Toronto)
Gerald Lynch, PHD (email@example.com)
President & CEO, Photonics Research Ontario (Ontario Centre for Excellence) (Toronto)
Jeffrey MacIntosh (firstname.lastname@example.org)
Director, Capital Markets Institute; TSE Capital Markets Chair and Professor of Law, Faculty of
Law, University of Toronto
Michael May, PHD (email@example.com)
President, Rimon Therapeutics Ltd. (Toronto)
Steve Diamond (firstname.lastname@example.org)
Senior Vice President, VentureLink Capital Corporation (Toronto)
Mark McQueen (www.yorkton.com)
Managing Director, Yorkton Securities (Toronto)
Richard Nathan (email@example.com)
Co-Founder and Managing Director, Brightspark Group
Darrell Pinto (Darrell.firstname.lastname@example.org)
Manager, Investor Education, Toronto Stock Exchange
Richard Prytula (email@example.com)
President and Founding Partner, TechnoCap (Montreal)
Tony Redpath, PHD (firstname.lastname@example.org)
Vice President, Primaxis Technology Ventures (Toronto)
Mark Weisdorf (email@example.com)
Vice President, Private Market Investments, CPP Investment Board (Toronto)
Peter Wright (firstname.lastname@example.org)
Linear Capital Corp. (Toronto)
Mr. Abouchar’s perspective is based on management of Tech Capital Partners’ $35 million VC
fund dedicated to early stage/university-based transactions.
There are four key issues in the commercialization of university-based innovation today:
(1) Is the IP developed inventor-owned, or is it institutionally-owned?
Typically, IP is institutionally-owned. The University of Waterloo model for
commercialization of innovation, however, provides for inventor ownership.
(2) Should the inventor/professor, a marquee candidate, or a “nuts & bolts” manager be the
CEO of a start-up?
Professors/scientists and marquee individuals, in most cases, make for poor CEOs in a
start-up situation. A “nuts & bolts” manager, who instinctively understands operating
from the ground-up and pays close attention to the bottom line, typically makes for the
best CEO in a start-up situation.
(3) What is the climate with respect to valuation of a seed level enterprise?
Seed level valuations are derived from anticipated second round (Series A) and third
round (Series B) valuations. Given that Series A and Series B valuation multipliers have
decreased significantly from their e-bubble highs, seed level valuation expectations must
be significantly lowered accordingly.
(4) The gap between development of a promising technology in a university setting and its
profitable commercialization is large, fairly characterized as a “valley of death” to be
Jonathon Rose, PHD:
Dr. Rose’s perspective is based on his experience as one of four principals at a University of
Toronto-based incubation of an idea for CAD-based software with application in the design and
manufacture of filed-programmable gate array (FPGA) semiconductors (chips).
University innovation-industry relations are relatively poor in Canada versus the U.S.:
(1) As a result of greater start-up activity, direct links, networking and informal
conversation are more readily available to university-based innovators in the U.S.
(2) There are strong links between academics and VCs in the U.S.
(3) The typical Canadian VC investor is looking for an immediate “bang for the buck,”
unavailable in the context of the commercialization of university innovation.
Tino Alavie, PHD:
Dr. Alavie’s perspective is based upon successful incubation of an idea fostered while at the
University of Toronto Fiber Optic Smart Structures Laboratory; and experience as CEO of
ElectroPhotonics Corporation, the company that was formed to complete research and
development, funded by two rounds of VC and subsequently sold for $500 million.
The key problems with the university innovation process are:
(1) Directed to R&D projects through university work, resulting in project development with
minimal financial resources (“bootstrapping”) that was accompanied by loss of focus
with respect to the commercial opportunity at hand
(2) Lack of systemic acceptance of entrepreneurship at the university: Provided rent-free
space, requesting payment of rent if and when revenues were generated; and no sooner
was rent being paid, than the university requested they vacate the premises.
(3) Lack of systemic protocol in the university with respect to the commercialization of
innovation resulting from R&D projects. In particular, there is no guidance provided
with respect to the availability of VCs, let alone developing relationships with VCs.
Provided such a protocol, VC awareness would be promoted, early relationship building
with VCs would be facilitated, and the need for inefficient bootstrapping would be
Based on his experience with ElectroPhtonics and more recent experience as a VC investor
himself, Dr. Alavie found Canadian VCs be greedier than their U.S. counterparts. Canadian VC
greed together with punitive Revenue Canada policy with respect to U.S. investors (including
submission of income tax returns to Revenue Canada), motivates Canadian-based operations to
be financed by U.S. investors through shareholdings in a U.S.-based shell corporation, rather
shareholdings in a Canadian-based operating company.
Mr. Prytula’s perspective is based on experience founding and running TechnoCap, a VC firm
based in Montreal. His firm has made seed and early stage investments in 12 Canadian and 20
U.S. companies, through which 15 U.S. and Canadian universities and more than 20 corporate
partners are participating in R&D.
The following are the drawbacks of dealing with university-based innovation and developing IP
with university researchers:
(1) Tedious negotiation process as a result of dealing with several professors/researchers rather
than one “CEO”, university bureaucracy and recalcitrance of professors to provide
information to VCs.
(2) Academic facilities lack 24-7-365 access.
(3) Academic facilities lack equipment.
(4) Where several researchers are involved, IP leakage is commonplace in an academic
environment, especially when researchers themselves do not own IP rights.
There are some advantages to developing IP with university researchers:
(1) Technology can be spun-off without IP rights through licensing.
(2) On-going use of university facilities at no cost.
(3) Researchers/future employees on hand with a great deal of knowledge.
Mr. Nathan’s perspective is based upon previous experience as a corporate lawyer and current
position as Managing Director of Brightspark Group, a Toronto-based VC firm primarily
investing in software-related companies, and has yet to invest in a university-based project.
(1) Universities do not create technologies, individuals do, and universities need to establish
procedures that facilitate commercialization of technology accordingly.
(2) Academic researchers and VCs need to know with certainty ownerships of IP rights.
Universities should have standard form contracts that grant a majority of IP rights to the
researcher(s). Universities must provide a guarantee that IP rights accrue to the company
and its investors that embarks upon commercialization of the technology.
(3) Current venture capital market effects are less relevant for earlier stage investment on the
part of VC firms. The general chill means investors are more cautious. This is counter
veiled by the fact that such market conditions lower the price of investing in the near-
term. The chilling effect is much greater with respect to Angel investors.
Peter Herman, PHD:
Dr. Herman’s perspective is based on experience as a university professor and researcher at the
University of Toronto, through which he has consulted with numerous VCs.
(1) A key issue from the researcher’s point of view is how to achieve protection of IP rights.
At the University of Toronto, university policy is unclear with respect to IP.
(2) While government research grants are available, they are limited and insufficient to
facilitate commercialization of innovation.
(3) Researchers lack the funds to hire IP lawyers and advisors to clarify IP rights and create a
business plan presentable to VCs.
(4) Universities need to create a Technology Transfer Funding Office to facilitate
commercialization of university innovation.
Dr. Lynch’s perspective is based upon experience as CEO of Photonics Research Ontario
(Toronto), one of four Province of Ontario Centres for Excellence dedicated to the
commercialization of university innovation.
(1) Centres of Excellence were created 14 years ago, and have been consistently under
funded from the start.
(2) Photonics Research has a standard agreement with 17 Ontario universities, and is in the
process of engaging colleges as well.
(3) The definition of IP and determination of IP rights are a matter of individual university
policy. Photonics Research’s standard agreement delivers exclusive worldwide licensing
and sublicensing rights to the company and its investors.
(4) Ontario Centres of excellence provide funding to facilitate the creation of business plans
by university-based entrepreneurs (up to $50,000/year for 2 years).
(5) Many of the companies that Photonics has been involved with end up incorporating
outside of Canada due to tax considerations.
Mr. Inwentash’s perspective is based on his experience of Pintetree Capital, a Toronto-based VC
firm, including successful investments in the commercialization of two university-based
innovations, one at the University of Toronto and McMaster University, the other at Montreal’s
There is not a lack of university innovation in Canada. While it is feasible to manufacture and
market outside of the U.S., funding commercialization requires a platform into the U.S., where
VC funds are more readily available. For example, in a recent US $ 200 million placement led
by Pinetree Capital, US $ 196 million of the funds came from the U.S.
Professor MacIntosh’s perspective is based on his academic and empirical research experience in
corporation, securities, law & economics, and small business/venture capital financing.
He summarized the roundtable discussion by reviewing the discussion in order to provide issues
that are helpful in answering the broad policy question: What can we do to facilitate improved
commercialization of university innovation (technology or IP)?
(1) University innovation takes place under two incentive models: individual/researcher
ownership of IP and university ownership of IP.
(2) Both universities and government have roles to play in clarifying IP rights.
(3) In Canada, existing university-based technology transfer/IP rights contracts are
characterized by their bureaucratic red tape and complexity.
(4) Since management is a necessary component of successful commercialization,
universities would be well served to offer courses in entrepreneurship; for example, by
having an entrepreneurs program offered through business schools.
(5) Universities are positioned to act as incubators by providing funding, as well as office/lab
space and equipment.
(6) Development of a standardized model for commercialization of university innovation is
not necessarily an effective approach.
(7) Government policies such as securities regulation escrow rules, the IP process, and tax
treatment of location, deemed disposition, rollovers for Angel investors and capital gains,
inhibit commercialization of university innovation in Canada versus the U.S.
(8) There is a need in Canada to develop better/closer relationships between VCs and
universities, and VCs and researchers/professors. Perhaps universities have a role to play
in the development of these relationships.
(9) In a small country like Canada, there are relatively fewer seed and early stage
opportunities, thus fewer economies of scale, resulting in fewer VCs and investment
bankers specializing in such early stage financing.
(10) Canadian entrepreneurs/investors appear to be more risk averse than their U.S.
counterparts. Thus, Canadian entrepreneurs seek control more often.
(11) There is a need to improve the interface of Angels/entrepreneurs and Angels/VCs.
(12) In Canada, there are relatively fewer corporate strategic investors/acquirers. Therefore,
VCs are relatively more important for the commercialization of university innovation.