2013 Canadian Startups Landscape Analysis: Full of US VCs and Still Low Investments (Mattermark Data Analysis)
I have just analyzed 93 Canadian tech startups that received capital funding, using the Mattermark database, from January 1st to Oct 15th 2013, excluding Biotech, Cleantech, Pharma, Oil & Gas, and Medical Devices. Aside from 4 seed deals where the amounts weren’t public yet, the total raised was $438 Million (including the HootSuite Series B $165 Million swing deal). Contrast that with $190 Million on 89 deals with 2012.
Is that good or bad?
Even if we back out the HootSuite’s numbers, 2013 funding has already eclipsed 2012 by $83 Million, and that will put Canada on a projected 35-40% growth rate, but the total numbers are still very small compared to the USA. Even with the HootSuite deal, Canada could finish the year with a projected $500 Million of investments, but that is only 3.3% of the total US equivalent investments of approximately $15 Billion per year.
For comparison, just in September alone, $1.3 Billion were invested in the US across 207 deals (source: my private Mattermark analysis).
But Canada’s GDP was 11% of the US in 2012 ($US 16.62 T vs. $US 1.82 T)! This means the Info Tech VC investments in Canada could be 4 times what they are today, i.e. $1.6 Billion, if we are to track the US levels.
Understatement: Canada is lagging.
Let’s dive into this data.
Deals Stages
The distribution of deals is heavily tilted towards seed/pre-A, with 52 deals in that segment or 61%, but that’s lower than 69% (56 deals) in 2012. Here’s the distribution graph:
Deals Dollars Distribution
You may want to mentally back-out $165 M from the B segment, because it represented a single deal (HootSuite). The Average Seed/Pre-A deal in Canada was $594K (based on 47 deals with data), the Average A deal was $5.4M, the Average B deal was $9.2 M. These are respectable ratios.
Geographical Distribution
Not surprisingly, Ontario has the largest number of deals and investment levels (excluding counting the HootSuite deal, which is in Vancouver), but BC is a good second overall, easily beating Quebec, even without the HootSuite deal.
Region | # of Deals | Dollars |
---|---|---|
Alberta | 5 | $34.5 M |
BC | 24 | $214 M (incl. $165M HootSuite) |
Quebec | 16 | $11.5 M |
Ontario | 38 | $170 M |
Ontario’s Distribution
The Waterloo-Toronto-Ottawa corridor (if there is one), has always been a point of comparison. Here’s how these 3 pivotal regions stacked in the table below. It is noteworthy to see that Waterloo has garnered over half of Toronto’s investments, with only about a quarter of the number of deals. This shows that Waterloo has definitely emerged as a place with a steady and quality level of startups.
Region | # of Deals | Dollars | Ave. $ / Deal |
---|---|---|---|
Ottawa | 6 | $29.4 M | $4.9 M |
Toronto | 26 | $87.8 M | $ 3.37 M |
Waterloo | 6 | $52.4 M | $8.7 M |
Top Deals of the Year
Let’s focus on the deals that raised over $5 Million. The key revelation is that 11 out of the top 20 top deals were lead by US VC firms.
Company | Last Funding | Sector | VC Lead | Date Announced |
---|---|---|---|---|
1. HootSuite (Vancouver) | $165 Million (B) | Social Communications | Insight Venture Partners (USA) | August 2013 |
2. Replicon (Calgary) | $20 Million (A) | Timesheet SaaS | Social + Capital (USA) | June 2013 |
3. Kik Interactive (Waterloo) | $19.5 Million (B) | Mobile Messaging | Foundation Capital (USA) | April 2013 |
4. Keek (Toronto) | $18 Million (C) | Social Sharing | AGF Investments (Canada) | January 2013 |
5. theScore (Toronto) | $16 Million (public) | Sports Content | Relay Ventures (Canada) | April 2013 |
6. Visier (Vancouver) | $15 Million (B) | Workforce Analytics | Foundation Capital (USA) | May 2013 |
7. Thalmic Labs (Waterloo) | $14.5 Million (A) | Wearable Hardware | Spark Capital (USA) | June 2013 |
8. Indochino (Vancouver) | $13.5 Million (B) | Custom Clothing | Highland Capital (USA) | March 2013 |
9. RANOVUS (Ottawa) | $11 Million (B) | Cloud Telecommunications | Azure Capital Partners (USA) | September 2013 |
10. BTI Systems (Ottawa) | $10 Million (C) | Networking Software | Bain Capital Ventures (USA) | February 2013 |
11. 500px (Toronto) | $8.8 Million (A) | Photography Content | Andreessen Horowitz (USA) | August 2013 |
12. ScribbleLive (Toronto) | $8 Million (B) | Live Blogging | Georgian Partners (Canada) | June 2013 |
13. 360incentives (Toronto) | $7.65 Million (A) | Incentives SaaS | OMERS Ventures (Canada) | January 2013 |
14. Drivewyze (Edmonton) | $7.5 Million (A) | Trucking App | Emergence Capital Partners (USA) | August 2013 |
15. InteraXon (Toronto) | $6 Million (A) | Wearable Hardware | Horizon Ventures (USA) | August 2013 |
15. Sprylogics (Toronto) | $6 Million (public) | Mobile Search | Beacon Securities (Canada) | September 2013 |
15. Vidyard (Wateroo) | $6 Million (A) | Video SaaS | OMERS Ventures (Canada) | March 2013 |
18. Auvik Networks (Waterloo) | $6 Million (A) | Network Automation | Celtic House VP (Canada) | May 2013 |
19. TeamBuy.ca (Toronto) | $5 Million (A) | Group Buying | BEST Funds (Canada) | August 2013 |
20. Dissolve (Calgary) | $5 Million (A) | Video Marketplace | iNovia Capital (Canada) | September 2013 |
Canadian vs. US Venture Firms
It is not possible to extract exact amounts coming from US vs. Canadian firms, because the amount splits are never disclosed during rounds with multiple firms, but the US firms were quite well represented. We counted 31 distinct US VCs vs. 30 Canadian VCs that participated in the 89 deals. One could reasonably assume that the US VCs probably contributed to about half of the $438 Million.
The most active Canadian VCs, with 2 or more deals:
- BDC Venture Capital (9)
- OMERS Ventures (7)
- Real Ventures (7)
- iNovia Capital (7)
- Full Stack (5)
- MaRS IAF (4)
- Yaletown Venture Partners (3)
- Version One Ventures (3)
- Rho Canada Ventures (3)
- Klass Capital (2)
- GrowLab (2)
- Relay Capital (2)
- Covington Capital (2)
- Georgian Capital Partners (2)
The most active US VCs in Canada, with 2 or more deals:
- ff Venture Capital (2)
- SoftTech VC (2)
- Horizon Ventures (2)
- Felicis Ventures (2)
- Spark Capital (2)
- Foundation Capital (2)
- Social + Capital (2)
Analysis
- Still not enough Seed/pre-A investments. We need to fill the funnel with lots more, because that how it works. A smaller percentage of companies make it into the A, B, C rounds. Seed/pre-A is like the laboratories of startups.
- US VC firms are scooping Canadian deals, often in the A & B stages, when the de-risking is done.
- BDC Venture Capital, Real Ventures and iNovia emerge as the top Canadian VC firms taking risk with Canadian startups, with a combined total 20 pre-A/Seed investments, but they are followed by a handful of other firms. This is good for Canada, as you typically won’t see US firms there.
- Canadian VCs and Angels are still not aggressive enough in taking risks with the entrepreneurs.
- Lots of agony over seed level/angel-ready startups. The Canadian Accelerators haven’t produced runaway startups, yet.
- There is hope, with some early investments in up and coming companies, such as Trendr, Mover, pplConnect, OMsignal, Pathful, Tulip Retail and Upverter. (Disclaimer: these are my personal choices, and I have no affiliation with any one them, except for mentoring Pathful, a Techstars Chicago graduate, and knowing the founders or early investors in Mover, OMsignal and Tulip Retail)
- 2 startups went crowdfunding for their seed rounds: Blacksumac received $300K from Indiegogo, and Fabule raised $150K from Kickstarter.
- Waterloo is definitely on the map. It wasn’t 2 years ago.
- Montreal still doesn’t have any big deals in 2013.
- It’s an open field for US VCs. As much as the borders are transparent for Canadian companies that are doing well in the US, the same applies to US VCs who are coming to Canada.
(Note: This analysis is published with permission from Mattermark. If I have missed any deals, or made errors in this analysis, please let me know. Disclaimer: I’m an advisor to Sprylogics, but haven’t voiced an opinion about them, and only provided factual public data.)
Very nice William. I’ll add analyst to your curator dna after this one.
Only one question–why if I was a Canadian startup with a US market (which is most all of them) would the smart money lead be in Canada?
I can’t see a reason.
Good question. The reality is most US VCs aren’t actively looking to invest in Canada at the seed/angel stages (with a few minor exceptions). They are coming in mostly at the A/B levels.
That said, the Canadian VC/Angels will be more tolerant and friendly initially, therefore more attractive. The good ones will have excellent US relationships and influences, so that helps in the follow-on stages.
Good point.
I think its going to change. For two reasons–1) the syndicates have added juice to the seed world and 2) borders simply don’t matter. Success in most every case depends on penetrating the US market. Whether you are building the product in Munich of Toronto doesn’t seem to matter.
Here’s the aside to that.
Is there a Canadian market that acts as a proof point at all? Doing business there was always an oddity, always at the bottom of the list for my US companies. I think you can prove a market in London, in Frankfurt even in Rome, in Europe before moving here. But not there.
I have no idea why, but this has always been the case.
The fact that about half of the money in Canadian Tech startups has come from the US is a case in point that the borders are very permeable.
Doing business in Canada from the US is still by far easier and more friendly than anywhere in the world. And the reverse is also. You can easily hop into Montreal, Ottawa, Toronto or Vancouver, just as easily as you go to Chicago from New York. These US VCs aren’t establishing offices in Canada; they don’t have to, so it makes doing business very easy.
I think that the opening up of crowdsourcing and AngelList syndicates is beginning to affect a good segment of the Canadian startups, in a positive way.
The times are a changing big time.
Lucky us for being able to participate and lead in this changing to a new, more transparent, more interesting times.
Great analysis, William, but missing Version One from that list – Canadian investments include: Frank & Oak, Top Hat, Upverter, Jobber, Talentbuddy (plus two unannounced ones which neither you or Mattermark can know of :-))
Few more 2013 Canadian investments from iNovia that were $5M or more, William:
– Drivewyze (AB) – $7.5M w/ Emergence Capital
– LightSpeed (QC) – $5M
– Dissolve (AB) – $5M
In total we have announced 7 Canadian investments in 2013 so far – 5 seed, 1 Series A and 1 Series B.
Enjoyed reading your post and analysis. A few things jumped to mind as I was reading it – would love to continue the dialog.
I think that the data is a little skewed between Canada and the US as there have been some major later stage / expansion rounds in the past couple of years. Heck, last week alone there was $150M between two companies in one market (MDM)! We just don’t see these in Canada that often – Hootsuite being a recent exception. Hope we see more!
I always like to use the 10:1 ratio when thinking of Canada and the US. However, there are reasons to believe that Canada will never reach this when it comes to startup funding. First, a high number of our entrepreneurs and entrepreneurial talent migrates south. There are approx 350,000 Canadians in the Silicon Valley. What would Canada’s startup environment look like if they all stayed home? Secondly, we just don’t have the large funds to support later stages of growth. Fortunately, US funds are starting to fill the void. Lastly, much of the startup funding is contributed from the Silicon Valley. There is not going to be another Silicon Valley in North America anytime soon. It would be interesting to see your analysis with Silicon Valley numbers removed.
You rightly noted that US funds are moving in, most notably at the Series B stages once the investments are somewhat de-risked. There is a strong motivator for Canadian VCs to encourage, and hopefully initiate, this trend. It still takes a lot of money to build large companies and Canadian funds do not currently have the ability to carry companies through these later rounds. Partnering with larger US funds is the perfect way to mitigate the future financing risk.
One other small note. The round in Ranovus was led by Azure through their Canadian office in Calgary. So, yes, they are a US fund, but do have a presence in Canada.
Boris, I think William’s analysis was looking at deals in 2013 only.
Yeah, realized this after I commented – so that makes only 3 deals for V1 in 2013.
Thanks Boris. Great, I was hoping that the missing parts would come out. I did go through the V1 site to make sure I didn’t miss any for 2013. Let’s email to fill that gap, where the data is to be public.
That’s correct. Thanks Kevin.
Great analysis! I think the point about Waterloo is pretty obvious from the data. Still, one problem we have in Canada is with the valuations of startups and even a place like Waterloo is seen as a great spot to hunt for bargains. Part of this is that we still need more Canadian big exits which will certainly help with future valuations. Having said that, OMERS has been aggressive with their investment (eg. Hootsuite and Desire2Learn)
Thanks a lot Kevin! I missed Dissolve and Drivewyze and will make an update. I had gone through your website to cross-check, but it was difficult to trace back the chronology of investments.
Wasn’t LightSpeed done in 2012 or there was another round in 2013?
With Drivewyze, who led?
Auvik from Rho will also be added.
yes. good points. it’s a journey, and i’m sure there will be new exciting Canadian startups that will pop!
William — great post, thanks for pulling this together.
Where’s the line in the sand between “VC” and angel in those pre-A calculations? Total size of raise or individual check written or? It would be very interesting to see if there are “repeat angels” other than us at Full Stack — we’ve done 5 deals (so far) this year.
Shouldn’t VanEdge be on that list? I think they’ve done two this year…
There is lots of room from early to late for US VCs (and angels!) to come in. In fact, that’s what IS happening, as Canadian startups follow the money. In the worst case, a Delaware company ends up being created and/or the pressure is there to move to the US to be “closer” to the money.
I haven’t seen much from syndicates and Canadian companies yet. The advice from Naval was “just create a Delaware co”, which may just be the case.
Hi William – Great analysis, thanks for posting.
I believe Georgian Partners (Canadian growth equity) led an $8mm round of Scribble Technologies in June 2013, with participation from Summerhill VP, EDC, and Rogers VP. This is a great example of a Canadian fund leading an expansion stage round at home.
It would be great if we could eventually get the funding levels higher, on a national basis. Even doubling it to 5% of US would be a great start.
I agree the lines are blurring definitely, especially when VC invest in “seed”/first rounds.
I knew of Contractually from Full Stack. I’m going to double check the data from VanEdge, and will add.
Can you please email me and we can continue that way? wmougayar AT Gmail. Thanks!
I expected a much higher growth after the Canadian govt.’s help for startups. Don’t u think at some point that will help?
Hi William, I have to say that this is the most important post I’ve read in years.. Great job.. You’re addressing what Canadian entrepreneurs have been feeling for a couple years now.
We definitely need to increase these numbers.. So many great Canadians have to head south. I can only speak for the west coast but there just isn’t enough VC diversity. There needs to be more VC’s like Boris Wertz who are willing to invest on west coast companies. Boris has his niche which is great but there just isn’t enough VC’s that are willing to dip into new markets. Nor are there VC’s willing to apply the risk/reward model like the guys on Sandhill Rd. There will be hits and misses but when there is a cohesive group of VC’s pushing innovation the rewards will outweigh the risks in the long-term. Through talking to other entrepreneurs on the west coast and looking at the stats above, BC is second in Canada for investments, this is a VERY scary thing.. West coast entrepreneurs are feeling it. Some are even getting out of the game. Talented guys and girls that with the right ‘mentorship’ and backing should be successful at one or more of their ventures throughout their career.
In talking to VC’s on the west coast and in having a couple west coast VC mentors the willingness for them to invest in innovative companies as opposed to ‘safe’ traditional companies is rare. Quite a few come from that old money mentality and see these investments as high risk. Guess what, they are. In creating a new sector of business there is no other companies to benchmark against. Therefore, why would they invest. These VC’s are like bankers.. Too much risk. Oh wait, BDC is a bank and they’re leading the way.. Something’s seriously wrong here.
My dealings with VC’s in Canada keep pushing our company south and we’re not the only ones. This is a MASSIVE problem for the future of the Canadian economy.. Somehow we need to get VC’s, tech and non-tech, into one room and make them understand that yes, some will fail but without putting money and ‘true mentorship’ back into Canadian entrepreneurs and keeping this old money mentality of no risk, it’s going to literally crush Canadian growth in the long-term. Canada will become more and more the country that buys American goods from American companies, keeping the GDP at a stagnant rate or worse..
I’ll end this passionate rant with at least a small solution..
So how do we solve this?
Growth needs to happen.. Let’s solve this.. The Canadian economy needs tech and non-tech VC’s to come together and, as one, start getting aggressive in truly mentoring and backing entrepreneurs with significant funds and taking risks.
It’s already a lot better than last year and the year prior. Yes, government funds help, but they are typically oriented towards the early/angel stages where the success signals are still a bit more murky.
William,
Great analysis. If I can add a couple of our 2013 deals from the Investment Accelerator Fund to the list. They are:
Ranovus
ExactFlat
Atomic Reach
Big Road
(three more that we have not announced yet)
The whole list of our announced portfolio is on our site iaf.marsdd.com
Hi Jared,
Thanks for adding this. Most of these were in the database already and counted, except for 1. Can I email you to follow-up or email me please? wmougayar AT gmail. I have a couple of clarifications to ask.
Thanks Guy. You and I have discussed this previously. i think this is improving though. I’m seeing more seed/angel level investments in Canada. I’ll email you.
Hi Joe. You’re correct! I will add it.
Thanks William.. I was more expressing my experiences and concerns with the landscape in comparison to other countries as I’ve been seeing it over the past three years. I truly believe this will become a major missed opportunity for growing the Canadian economy if VC’s do not get aggressive. And there just are not enough tech VC’s in Canada. They’re going to need assistance from non-tech VC’s. Just my two cents for what it’s worth. Cheers. 🙂
I don’t think Canadian Startups do enough to promote themselves. I recent article points to the value PR could provide an IPO. Communications is a key part of growing your business.
True. But when the market is elsewhere, like in the US, they will promote there, which makes them not so well known in Canada. That’s a real dilemma. The US celebrates its startup successes more.
If CDN startups would promote in the US, get US funding, Canadians would see what they are missing.
Hi William, at Rho we’ve closed three new deals this year (and at least 2 more announcing very soon). Closed deals are Auvik, Karma Gaming and Plot.ly.
I’ll update today. Thanks Roger. I knew there were holes.
I’ve used Mattermark’s service recently and while it takes a fresh new look at compiling publicly available data on financings and company traction (social data, site traffic, etc) it is not a comprehensive list of deals. Love what Danielle and co are doing there but the best way for all who commented below to correct the data set is to submit comments directly to Mattermark.
Absolutely, we are happy to take any feedback/data you have and incorporate it as quickly as we can (usually same day). You can send it to support@mattermark.com
Innovacorp also closed on Karma Gaming, with Rho.
Thanks Thomas. I’ll contact you.
Fascinating analysis, William! how did you put together this data from Mattermark? csv export and then some Excel slicing and dicing?
Yup. All of the above plus talking to some folks. Thank you.
Thank you William, Could someone in the group explain why certain jurisdictions in Canada do not have angel and vc tax credits. If the problem statement is 3.3% and not the typical 1/10th of US {gap comparison}. Next, yes agree on the commercial strategy needs to be US for all Canadian Start Ups and operating teams need “know how” to close US C-Suite/POs; and lack of PR on success stories here comparative to US ecosystems. I would much rather read about a funding milestone being met by a start up in the daily Toronto Star or National Post than news that speaks to the entrenched limiting progress or systematic individual gain on public monies.
Hi Debra,
Thanks for comment. You’re right on both counts. Especially, the second one where the Canadian mainstream media takes a lukewarm, sporadic, or superficial approach to covering Canadian startups.
Hi William, thank you for your reply. On the PR front: is it lack of early stage pr relations to the news media here by the start up companies themselves? What are your thoughts about why ON does not have angel and VC credits? Thanks William. Debra
This is excellent analysis William. I just wanted to point out PerspecSys (Toronto, ON) had a $12M B round co-led by Paladin Capital Group and Ascent Venture Partners in May 2013.
Thanks David. I’m in the process of updating this data and will take this one into account.
Enjoyed reading your thorough analysis on Canadian startups, goes to really show how quickly the business environment is changing on a daily basis.