There’s a tired talk track in the Canadian startup ecosystem that somehow our system here is broken. That you, as founders, aren’t ambitious enough, that we, as VCs aren’t fast enough, that our government is too involved… and that overall, our inability to generate the scale of successes that Silicon Valley does is entirely a result of poor decisions we continue to make.
The world is taking notice of you, and outsiders are coming to Canada to fund your ideas.
I like to think of the Canadian ecosystem as an analogy to a child growing up. We’ve reached our early twenties, and we’ve taken our own path to get there. We’re through the awkward teenager years, we are starting to feel a bit more confident about what we have to offer the world, but we’re still early on life’s journey with so much potential ahead.
Recently, I had a chance to catch up with two people that I have long admired and consider experts on the Canadian tech ecosystem. Mark MacLeod, current coach, advisor and investor, and Peter Carrescia, Venture Partner at Information Venture Partners, have sat on both sides of the table. They have both been long-time investors and operators.
My main takeaway from the conversation was that as a group, our outlook for the Canadian tech ecosystem is at an all-time high, and we all agree that we still have work to do. I read social chat like the rest of you, and feel like we are all too quick to criticize the Canadian market.
I wanted to balance out this narrative and for you to hear voices that believe in you, acknowledge the incredible strides you are making, and to share some (hopefully useful!) insight from an investor’s perspective. The following are notes from my conversation with Mark and Peter.
We are an ecosystem in transition and witnessing the birth of a true angel ecosystem
The Canadian tech ecosystem is unique. We have our own blend of investors, founders and government initiatives. We are still maturing.
And we appear to be reaching a tipping point. Literally thousands of newly wealthy tech operators have been created in Canada in the last few years as a result of the hard work of entrepreneurs, investors and yes, government. These new potential investors create a very different environment than existed five to seven years ago, where the majority of angel investors had hugely impressive business credentials, but no real tech experience (does anyone remember mining!).
Our angel investor community is about to get a jolt of Red Bull the likes of which we have never experienced. These people will be investing and starting businesses of their own. Maybe you are one of these people. They get tech. You get tech. It is all you have known.
Just a couple of weeks ago a group of female executives from Shopify announced Backbone Angels, a collection of angel investors focused on backing early-stage female and non-binary founders, with a focus on Black, Indigenous and women-of-colour-led companies. This is an extraordinary development and one we expect we’ll see many more of.
There were many, many years when we saw the same small group of angel investor names popping up on cap tables. That’s about to change.
We now have a nation of world-class founders and VCs hustling for deals
In 2000 it would have been very unusual to see a US VC investing in a Canadian company. Now across the board, right up to growth equity, there are likely more US investors in Canada than there are Canadian investors.
As Canadian founders today, you are going for far bigger swings than founders used to. The world is taking notice of you, and outsiders are coming to Canada to fund your ideas. Canadian VCs have long been criticized for being too risk-averse. The good news is, we are stepping up and moving up the risk curve. Maybe slowly… but trust me, we are moving. A quick search of Pitchbook shows that in 2016 $1.49 billion was invested by Canadian VCs into Canadian companies, versus $2.66 billion in 2020.
If ever there was a moment for Canada to put its stamp on the global stage, it’s now.
Canadian investors are also taking bigger swings than we used to and getting to grips with the fact that not every business we invest in can succeed. This competition is making us all better investors, and Canadian founders are the beneficiary of this dynamic. It’s just the nature of the business.
One thing we don’t have, yet, is the breadth of seed investors in this country to capture the opportunities that are being created by founders with support from angel investors. We have some great early-stage funders like Version One, Two Small Fish, Golden, Mantella and some new up and comers like Panache, Diagram, and Ripple to name a few.
The good news is that according to the Canadian Venture Capital Association, 2020 saw the highest average deal size on record for seed-stage investments at $2 million, representing a 41 percent increase from 2019 levels and more than doubling average deal size from five years ago. There are also some US seed funds coming north of the border, but the benefits of taking local money in the early stages are real and shouldn’t be ignored. We need more!
We need to change the narrative in Canada
There’s incredible momentum in Canada right now. The value of Canadian exits is at an all-time high. Nine of the top 25 venture-backed Canadian tech exits in the last two decades have occurred since January of 2020. And Toronto is in the top five talent markets in North America last year, alongside the Bay Area, Seattle and New York.
The lasting impact of COVID on the global venture ecosystem can also not be overstated. The historical narrative that the probability of company success increases with relocation to the Bay Area, is now no longer that obvious. Coupled with VCs learning to identify, due diligence and invest in companies entirely remotely has created a unique opportunity for entrepreneurs in Canada.
The combination of the growing number and sophistication of investors, founder confidence and know-how, and the structural changes that COVID has accelerated means it’s all there to play for. If ever there was a moment for Canada to put its stamp on the global stage, it’s now.
We need to embrace this momentum. Let’s not shy away from aggressively pursuing the creation of leading global businesses. Supporting job creation and innovation will always benefit when good businesses become great businesses on a global stage.
Today, you are standing on the shoulders of giants. We can all benefit from building on the recent successes of the Canadian ecosystem, including companies like Shopify, Lightspeed, Wattpad, Verafin and Wave.
For our part, our Canada-focused team of investors has gone from strength to strength. We remain focused on early-stage (Series A-C) tech businesses. And they are matched by a team of functional experts in talent, communications, and growth that I’d put up against some of the best in the world in their fields. We, and all of our fellow Canadian VCs are here for you. We are rooting for you.
There’s never been a more exciting time to be Canadian. Let’s do this!
Yours sincerely,
Damien