Sławek Potasz, a Polish entrepreneur, has “a huge love for Canada.” As a mountain biker, he was captivated by the beautiful trails in North Vancouver on a visit to the country, deciding to relocate his business to Canada through the startup visa immigration program, which allows international entrepreneurs like him to become permanent residents.
Potasz co-founded InMotion, a company with products that include Car Scanner, a robot that uses cameras and sensors to evaluate and document a car’s condition for car-rental and fleet-management companies.
Cultural differences, language barriers and lack of local connection can hinder collaboration between immigrant entrepreneurs and Canadian investors. The market inefficiency has inspired some investors to try to fill the gap.
After relocating, Potasz reached out to North American venture capitalists in an attempt to raise capital, but “failed miserably.” He thinks his lack of fundraising success was due not to a lack of available resources, or to shortcomings in his business, but to cultural differences, and different ways of communicating and maintaining connections.
“Even though people everywhere are extremely welcoming and tolerate diversity, your funny accent and the fact that you come from somewhere else are still very challenging,” he said.
But if those factors create barriers for first-generation founders, some investors see a market inefficiency — and an opportunity.
“My belief is immigrants and potential immigrants are exceptional people to invest in for a lot of reasons. But does everyone believe that? That’s a question, ”said Sunil Sharma, managing director at Techstars Toronto.
Immigrants are more likely than native-born Canadians to be self-employed; on average, their businesses also tend to create more jobs than those of Canadian-born owners, according to Statistics Canada. Yet the agency’s data also shows small-business owners born outside the country are less likely to have the support of venture capitalists or angel investors to start a business (0.6 per cent) than those born here (1.1 per cent). They are also less likely to use credit from financial institutions (27.6 per cent to 37.6 per cent, respectively), and more likely to use money from friends and family (15.0 per cent to 12.2 per cent, respectively) compared to their Canadian-born counterparts.
A study prior to the pandemic found that immigrant business owners, especially those who have been in Canada for 20 years or more, were less likely to apply for financing than their native-born counterparts. They were also less likely to turn to formal sources like lease or trade-credit financing and government-based financing. When immigrants did apply for financing, however, their applications were generally approved as often as those made by Canadian-born owners.
The reasons could be complicated, Sharma said. It could be as simple as limited-partner agreements preventing investors from pursuing opportunities in certain regions, or in some cases it could be “just bias.”
“Something they’re not even aware of which might be they’re not feeling comfortable to invest in someone who is potentially either an immigrant or may become one,” said Sharma.
Investors’ lack of recognition of an entrepreneur’s international qualifications could also get in the way of successful capital attraction, he said.
“For example, we think very highly here if you went to university at Waterloo or Toronto, but what about Sharif University in Iran, which is arguably the world’s top engineering school?”
Sharma said Canadian investors often neglect founders’ previous work experience at well-known international companies, such as Nigeria’s Flutterwave or Paystack, because they’re not familiar names in this country.
Celtic House Asia Partners, a California-based venture capital firm focusing on early-stage startups in North America and China, makes immigrant-founded businesses a particular focus. The company has partners in Canada, and has guided the firm it was spun out of, its Ontario-based sibling Celtic House Venture Partners, in a few investments focused on first-generation immigrant entrepreneurs.
“These founders, before we invested, nobody really took notice of them. In Canada, there are very few VCs who are focusing on this forgotten market, ”Charlie Wong said in a February interview with The Logic.
“We are immigrants ourselves, and we look for immigrant entrepreneurs whose companies already have great [operations], but the owners might have difficulty securing funding from large VCs. And that’s where we come in, ”said Wong.
One example of this thinking: Celtic House Asia Partners’ investment in Fantuana food-delivery platform focused on the Chinese community founded in BC by first-generation entrepreneurs.
Celtic House Asia Partners managing partner Jie Chen said immigrants at far remove from their home country can find themselves at a loss for connections on both sides.
“Chinese founders, they would have been in Canada for 10 years if they came here for school. They were not in China for the past 10 years. And 10 years ago, VC and startups were not that popular, ”Chen said,“ so you kind of do not know what’s going on in China and do not know what’s going on in Canada about fundraising. ”
The lack of understanding between immigrant entrepreneurs and Canadian investors goes both ways. Chen said it could be hard for Canadian investors to spot a promising business founded by immigrants.
“When they [Chinese entrepreneurs] say ‘OK, we can make 400 million RMB next year,’ they really want to hit that goal, ”said Chen, arguing that investors who fail to understand the conservative approach most Asian immigrant entrepreneurs adopt could cost them a great opportunity while they look instead for companies promising more dramatic growth, but with less certainty.
Meanwhile, Sharma’s Techstars Toronto Accelerator has helped launch 52 companies, most of which have been incorporated in Canada and were founded by prospective immigrants. It runs three-month programs in cities around the world providing entrepreneurs with funding, mentorship and access to networking.
Potasz was one of the participants.
In September 2020, the InMotion founder presented at Techstars’ annual event, Techstars Demo Day, where graduates of the program present their business ideas. As a result, he was able to secure his first North American investor, Chicago’s Dipalo Ventures.
That first investor made all the difference, Potasz said, crediting it with helping him finally bridge the gap to the North American investment community. “There was like a huge effect of a snowball, I would say, with one first angel investing, then others.”
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