For those of us who work in the Canadian social media and startup circles, there was some celebrating earlier this week when BackType announced it had been sold to Twitter.

Lots of credits goes to founders Christopher Golda and Mike Montano, who have made BackType one of the leading services to track and analyze social media activity.

Without raining on the BackType parade, a question that begs to be asked is whether BackType should have been funded in Canada as opposed to the U.S.

To provide some background, Golda and Montano were electrical engineering graduates from the University of Toronto, who showed their entrepreneurial chops by starting a service called iPartee. While the business didn’t succeed, Golda and Montano proceeded to start BackType in 2008 as a way to search for blog comments.

To jump-start the business, they applied and were accepted into Paul Graham’s YCombinator startup program in Silicon Valley, which coughed up $15,000 for a 6% in BackType. This let Golda and Montano create a prototype they could pitch to investors. Over the next three years, BackType raised $1.3-million and expanded into Twitter search.

In hindsight, BackType is a big fish that got away from Canadian investors. I would hazard to guess that in 2008 getting seed capital from Canadian investors was a remote possibility for Golda and Montano, which is likely one of the reasons they applied for the YCombinator program.

The question is whether BackType would get funded today in Canada. It appears the seed and startup investment landscape has changed with the emergence of new funds such as Real Ventures. Meanwhile, there has been a growing number of startup acquisitions, which should bolster the confidence of investors and entrepreneurs.

Do Canadian investors now have the ability and willingness to finance smart entrepreneurs with ideas? Or do Canadian investors still need to see traction such as a finished product, customers or revenue?

For more on the BackType story, check out this TechVibes story.