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Not many Canadian startups are willing to take the risk

Not many Canadian startups are willing to take the risk

Posted by PanamericanWorld on November 03, 2016

Mergers and acquisitions are in vogue, at least in some circles. The value of transactions involving Canadian companies and investors so far this year is on pace to eclipse last year’s total figure, projections extrapolated from Thomson Reuters data show.

Notably, publicly traded companies dominate the list of acquirers. (The numbers include two major deals awaiting approval — Potash Corp.’s all-stock tie-up with Agrium Inc., and Enbridge Inc.’s proposed takeover of U.S.-based Spectra Energy Corp.)

The list, however, shrinks when transactions involving public companies are excluded. Canadian companies, both public and private, have to date acquired 251 private firms, 16 of which were backed by venture capitalists, CB Insights reports.

And when it comes exclusively to deals among startups and mid-sized private enterprises, the slate is nearly bare.

While an acquisition can be a shortcut to growth in the fast-paced world of startups, the preferred and reliable path to growth still appears to be building from within. One plausible explanation, found in a recent Deloitte report, argues that just a tiny fraction of Canadian companies are intrepid risk-takers.

But Barry Gekiere, who helps seed-stage companies get to market in his role as manager of the MaRS Investment Accelerator Fund, disagrees. He contends the primary reason for the sporadic M&A activity among startups is a capital shortage.

“They’re trying to use their capital to grow their business rapidly,” Gekiere said. “They don’t have sufficient capital to make those acquisitions.”

There are a few exceptions in recent years. A few of the country’s leading startups have opened their chequebooks to bring another organization into the fold — Kik and Vidyard among them — and they suggested future acquisitions down the line could be a key component of their growth strategy.

“We are constantly looking at what’s coming down the pipe from a new technology perspective: What are people building, why are they building it,” said Vidyard co-founder and chief executive Michael Litt in an interview.

Kitchener, Ont.-based Vidyard got the ball rolling last July after it began to evaluate how to move forward with San Francisco-based Switch Merge, a partner that wanted to use Vidyard’s APIs to build its own products. Litt and his team felt Switch Merge’s personalized videos could be valuable to Vidyard’s marketing platform and a partnership limited how it could use that asset.

Since it became evident to Switch Merge’s founder that Vidyard was in a better position to take advantage of its technology, the timing of the deal also made sense.

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