Ontario Government Please Invest in Global Links

I am not a doctor, but I play one on T.V.

That sort of covers my depth of analysis here. I am not an expert on how to make the VC ecosystem better, but about three months ago I had lunch with someone who is and we talked about the Ontario government’s approach.

A comment on a post over at http://www.startupnorth.com has turned into a post here because it is a good follow up to MESH, unMESH. Jonas’ points and Mark McQueen’s post both do a good job at covering the shortcomings of the Ontatrio government’s plan to resuscitate the local venture capital industry.

What’s that they say about doing the same thing over and over and expecting different results? Basically, this plan reinvests in the same players and doesn’t dedicate cash to domestic seed/venture startups.

I do not think that there is a shortage of entrepreneurial talent and energy. As some have pointed out, government regulation/programs/tax breaks are actually pretty good in Ontario. And while it is nice to see the Ontario government stepping in to address the VC crisis in this province, few authentic capitalists would argue that it is government’s job to be a venture capital market maker. Just get out of the way.

And if you are going to prime the pump with some cash, try to stimulate some competition and establish high value links to global VC markets instead of reinforcing the tightly bound social network that can sometimes stifle innovation (as I wrote about in the MESH, unMESH).

Here’s what I remember from that lunch. The nachos were good. Israel seemed to have come up with the model worth emulating and Peru has emulated it with some success.

In those cases, the government provided enough funds to convince top tier US venture firms to open a local office (with Americans contributing some matching funds). Typically a VC partner with a winning record opened the office. The startups received the value add of that experience, the experience of successful partners in the US and most importantly, a bridge into the US market for follow on rounds and marketing.

These foreign VC offices also eventually spun off talented VC partners into stand alone local firms and encouraged globally successful nationals to repatriate.

The effect was the development of a layer of global class venture capital partners and returns on investment that obliged institutional investors to open the flow of cash to the asset class. Ah-ha!

It is tough to message this kind strategy politically though. Who is going to lobby for and sing the praises for this kind of approach? Cash starved entrepeneurs who are too busy trying to get their idea off the ground? The TD Bank who just got a juicy management contract as a reward for sitting on the venture capital sidelines for years? The local VC firms who are the only game in town? Hmm … maybe this is a job for David Crow??

ONTARIO GOVERNMENT FUNDS U.S. VC FIRM TO COMPETE LOCALLY … not a very catch Globe & Mail headline if you are the Premier but it is probably the best job creation strategy possible.

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MESH, UnMESH – the danger of social capital

I guess a little grass is good. It gets you thinking. As I was out in my yard mowing the lawn, digging up the flower beds, planting … the Florida, the MESH, the bonding and bridging social capital … it came together for me in a moment.  Shall we see if I can piece it together for you again in this post?

A couple of weeks ago I attended Canada’s biggest Web conference, MESH08 at the MaRs Discovery Centre in Toronto. Thanks to Mark, Rob, Michael, Stuart and Matt. It was a great event!

Coincidently, I bumped into Richard Florida while he was walking into his office at MaRs, KD Paine & Joe Thornley were leading the social media measurement meme during the week and I received word from ChangeThis.com that their editorial board has selected my idea to link social media to corporate valuation (vote here till June 19th).

Between Third Tuesday & MESH, I bumped into a lot of people.  I appreciated the chats with David Crow, Jonas Brandon, Scott Pelton, Michael O’Connor Clarke (ain’t he the best!), Jeremy Wright and Duncan Hill.  And as usual, I really enjoyed savouring new connections.  Reconciling Dragon’s Den, Sean Wise, Will Pate and VenCorps as consistent was fun.  David Jones & I connected through our ‘hood.  I am worried. Tamara Kremer might be more fun than me and Collin Douma has already taken the “Johnny Cash of social media” spot.  Networking on the patio through tech star Amber MacArthur to stir up the attentions of Mark Kuznicki was memorable.  Learning more about Radian 6 was key and of course, my personal favourite random media effect … the Mike Kelly, Mike Cayley human alliteration (heh, heh – his blog is entitled “strangely entangled”).

If you have not quite caught it yet … the subject of this post is links.  Helpful, influential, supportive links.  Links that must be invested in, over time, with contribution, sharing and commitment.  Or in other words, the resources that are embedded in social connections known as social capital.

As I reflect on MESH08, I keep thinking of a Harvard Business Review article entitled “When Social Capital Stifles Innovation” co-authored by Richard Florida, Robert Cushing and Gary Gates.

Once again, I want to commend “the MESH guys” on their effort to create the premier web conference in Canada.  My wondering about “the state of the nation” in terms of the Toronto scene and innovation in Canada in general is a testimony to their success. 

So here goes the wondering bit:  Is it impossible to create an innovation led culture and economy when our baby boomer bubble is so pronounced, we underfund startups, the venture capital market is shallow, small populations, small markets and a “branch-plant” mentality of scarcity breeds local hypercompetition?

I don’t think so, but Florida, Cushing and Gates serve a cautionary note.  “Relationships can get so strong that the community becomes complacent and insulated from outside information and challenges. Strong ties can also promote the sort of conformity that undermines innovation. Weak ties, on the other hand, allow a basic level of information sharing and collaboration while permitting newcomers with different ideas to be accepted quickly into the social network. Thus, social groups with weak ties could be expected to encourage innovative thinking.”

I don’t think Toronto (or Canada) is yet taking full advantage of our diversity, but I am hopeful that we are moving in the right direction.  Events like MESH08 and Third Tuesday help (on a different front) by connecting our tightly bound community through weak links to people like Marshall Sponder, Natalie Johnson (Shel says she gets it), Rohit Bhargava and David Gratton (great moderator!).  Panelists – you must really feel like “the new kid in town” when everyone rushes you at the end of your session.

At some level, perhaps the point is – who cares?  Once you understand the Gladwell/Wattsinfluencers-shminfluencers” thing,  but that is a whole other post. 

Brian Uzzi has found that striking a balance between bonding and bridging social capital is the best formula. So perhaps a couple of ideas that may be useful for any community that wants to steer clear of the dark side of social capital …

When a peer tries to innovate, makes a major move, attempts to reinvent an industry, risks financial and social capital and personal ego, a tightly bound social network can either help their fellow lobster out of the pot, or drag them back into the boiling cauldron.  A mentality of false scarcity and local hypercompetition can breed indifference or satifice driven criticism.  On the other hand, mobilizing in support of efforts to build global success stories enriches the home town crowd over the long term, digg it!?.  I am not suggesting a free pass, just a healthy awareness of the pros and cons of a tight social network and enlightened self interest when it comes to the weak links that are so valuable.

Wrt MESH specifically, maybe somehow broadcasting the twitter tweme on public monitors or projecting it can open up the amazing (but exclusive) dynamics of the back channel or the video shot during the conference could be played in the common area to create some feedback loops.

And perhaps there are some ways to bring in even more value packed outsiders into the conference? 

Music, advocacy, Club Penguin, StumbleUpon, Social Media and the Enterprise – I think that the content already meets the new standards for meetings and conferences that make them worth travelling for.  May be some strategies ontop of that great content like:

–  giving each panelist 5 free tickets and asking them to bring a posse of out of towners,

– coordinating twemes and a skype swarm with a sister conference, or, (UPDATE: Here is an example of someone getting going with that sister conference idea mentioned above: http://www.futureexploration.net/fom08/)

– raising the price to $1200 per person but including free air fare (airfair?) scholarships from anyplace in the world.

Just a few half baked thoughts.

Oh, and Jacquelyn, thank you! I don’t take links lightly and I really appreciate this one.

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