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Immigrant entrepreneurs find it difficult to obtain financing. Some investors see it as an opportunity

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Sławek Potasz, a Polish entrepreneur, has “tremendous love for Canada.” As a mountain biker, he was captivated by the beautiful trails of North Vancouver while visiting 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 whose products include Car Scanner, a robot that uses cameras and sensors to assess and document a car’s condition for car rental and fleet management companies.

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Cultural differences, language barriers and lack of local connections can hinder collaboration between immigrant entrepreneurs and Canadian investors. Market inefficiency prompted some investors to try to fill the void.

After moving, Potasz approached North American venture capital firms to try to raise capital, but “failed miserably.” He believes his lack of fundraising success was not due to a lack of available resources or shortcomings in his business, but to cultural differences and different ways of communicating and maintaining connections.

“Even though people everywhere are extremely welcoming and tolerant of diversity, your funny accent and the fact that you come from elsewhere is still very difficult,” he said.

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But while these factors create hurdles for first-generation founders, some investors see it as market inefficiency and opportunity.

“I believe that immigrants and potential immigrants are exceptional people to invest in for many reasons. But does everyone believe it? It’s a question,” said Sunil Sharma, general manager of Techstars Toronto.

Immigrants are more likely than native Canadians to be self employed; on average, their companies also tend to create more jobs than those of Canadian-born owners, according to Statistics Canada. However, the agency Data also shows that 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%) than those born here (1.1 %). They are also less likely to use credit from financial institutions (27.6% to 37.6%, respectively) and more likely to use money from friends and family (15.0% 12.2%, respectively) than their Canadian-born counterparts. counterparts.

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A pre-pandemic study found that immigrant business owners, particularly those who have been in Canada for 20 years or more, were less likely to to apply for funding than their native-born counterparts. They were also less likely to turn to formal sources such as leasing or trade credit financing and government funding. However, when immigrants applied for financing, their applications were generally approved as often as those submitted by Canadian-born owners.

The reasons could be complicated, Sharma said. It could be as simple as limited partnership agreements preventing investors from seeking opportunities in certain regions, or in some cases it could be “just bias”.

“Something they’re not even aware of is maybe they don’t feel comfortable investing in someone who is potentially an immigrant or could become one,” Sharma said. .

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Lack of recognition by investors of an entrepreneur’s international qualifications could also hamper the success of attracting capital, he said.

“For example, we think very well here if you went to the University of Waterloo or Toronto, but what about Sharif University in Iran, which is arguably the best engineering school in the world ?”

Sharma said Canadian investors often overlook the founders’ previous work experience in well-known international companies, such as Flutterwave or Paystack in Nigeria, because they are not household names in that country.

Celtic House Asia Partners, a California-based venture capital firm that focuses on early-stage startups in North America and China, pays particular attention to immigrant-founded companies. The firm has partners in Canada and has guided its parent company, Ontario-based sibling Celtic House Venture Partners, in a few investments focused on first-generation immigrant entrepreneurs.

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“These founders, before we invested, nobody really noticed them. In Canada, there are very few venture capitalists focused on this forgotten market,” Charlie Wong said in a February interview with The logic.

“We are immigrants ourselves and we are looking for immigrant entrepreneurs whose businesses already have large [operations], but owners may find it difficult to secure funding from large venture capitalists. And that’s where we come in,” Wong said.

An example of this reflection: the investment of Celtic House Asia Partners in Fantouana Chinese community-focused food delivery platform founded in British Columbia by first-generation entrepreneurs.

Celtic House Asia Partners managing partner Jie Chen said immigrants who are far from their home country can find themselves short of connections on both sides.

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“The Chinese founders, they would have been in Canada for 10 years if they had come here for school. They hadn’t been in China for 10 years. And 10 years ago, venture capital and startups weren’t that popular,” Chen said, “so you don’t know what’s happening in China and you don’t know what’s happening in Canada in fundraising.”

The lack of understanding between immigrant entrepreneurs and Canadian investors goes both ways. Chen said it could be difficult for Canadian investors to spot a promising immigrant-founded company.

“When they [Chinese entrepreneurs] say, ‘OK, we can make 400 million RMB next year,’ they really want to achieve that,” Chen said, saying investors who don’t understand the conservative approach that most Asian immigrant entrepreneurs take might costing them a great opportunity while they look instead for companies promising more spectacular growth, but with less certainty.

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Meanwhile, Sharma’s Techstars Toronto Accelerator possesses helped launch 52 businesses, most of which were incorporated in Canada and were founded by prospective immigrants. This short 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 the annual Techstars event, Techstars demo day, where program graduates pitch their business ideas. As a result, he was able to find his first North American investor, Dipalo Ventures of Chicago.

That first investor made all the difference, Potasz said, crediting him with finally helping him bridge the gap with the North American investment community. “There was like a huge snowball effect, I would say, with an angel investment first and then others.

This section is powered by The logic. The Logic is Canada’s leading technology and business newsroom. For more information, visit thelogic.co.

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