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Will the money be there for Canada’s tech startups to succeed?

Will the money be there for Canada’s tech startups to succeed?

Posted by PanamericanWorld on August 22, 2016

The best thing about my job is that I often get to see the future. A few weeks ago, for example, I met with several early-stage startups at Notman House, a space BDC Capital helped establish to support the best tech entrepreneurs in Montreal. There was no question in my mind that some of these founders had the ingredients to build the next unicorn.

But Canada’s innovative tech companies also face headwinds. When they seek to compete on a global scale and need investment rounds of $10 million or more, will that capital be there? Will they be able to remain independent and headquartered in Canada? Or will they have to accept international ownership to fund their success?

We all have a stake in the answers. Canada’s tech sector is critical to our economy, fueling research and development investment, productivity growth and development of skilled talent. As Canada’s largest and most active venture capital investor, BDC Capital is uniquely positioned to study these questions. In addition to investing directly in startups, we support close to 60 venture capital funds and seven accelerator programs, thus backing more than 700 innovative young companies across the country.

That means BDC has access to a lot of data, which we studied along with publicly available information. Here’s what we found.

There’s been an impressive 160 per cent jump in the number of venture investment deals each year since 2011. Last year, more than $2.5 billion was invested in venture-funded startups — the most since 2001 — and more than 40 per cent of that came from outside Canada.

The private and public sectors in Canada are increasing resources available to early-stage companies. For example, the Venture Capital Action Plan managed by BDC Capital on behalf of the Canadian government attracted more than $900 million in new private capital into the market. More than 120 young firms are already seeing money from it flowing into their coffers through 20 Canadian VC funds.But our findings also confirm these companies need more support. The average size of a venture investment round in Canada is significantly smaller than some other countries — less than half that of Israel and less than a third of the U.S. In the size of venture capital funds, Canada again trails the U.S. and Israel. And the majority of non-Canadian venture investment ─ 49 per cent of all capital to be precise ─ goes to larger, later-stage rounds.

Our data also shows Canadian corporate investors are less active in engaging with startups than their international peers. Research from Britain-based Global Corporate Venturing confirms this: out of more than 800 corporations worldwide that have made a venture investment in the past two years, only 14 are based in Canada.

So, all things considered, how can we help more Canadian companies make it past the startup phase?

Two priorities emerge:

Canadian companies need access to larger, later-stage venture capital funds — to the tune of $250 million or more — to scale up, stay in Canada long enough to reach critical mass and generate more Canadian IPOs.

We also need more corporations to engage in the venture ecosystem. That would extend their own R&D and let them see around the corner before they are blindsided by a disruptor or a competitor.BDC Capital is energized by the federal government’s work to define an Innovation Agenda, which includes fostering an entrepreneurial and creative society and positioning Canada as the location of choice for investment and growth.

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