New data on Montreal startup ecosystem shows need for investments in scaling, capital

Montreal’s startup ecosystem has been changing over the past number of years. In 2015, Startup Genome ranked it among the top 20 global startup ecosystems, but in the years since the city has fallen in the rankings. Now, things in the city are starting to pick up.

“Normally it takes anywhere between 20 to 25 years to develop a startup ecosystem. We want to see if we can make it quicker.”

In this year’s Startup Genome Global Startup Ecosystem Report, Montreal fell just short of a coveted top 30 spot. According to a recent report by Bonjour Startup Montreal (a Startup Genome regional partner), the city ranked 33 overall.

Bonjour’s report entitled Montréal Startup Ecosystem Portrait, is the inaugural report since the organization officially launched earlier this year. In the first of its kind look at the city, Bonjour did a deep dive into Montreal’s startup community, pointing not only to growing areas, but places the ecosystem needs to improve if it hopes to compete with other global hubs.

A collaboration between OSMO and Fondation Montréal Inc., the goal of Bonjour is to help take the city’s existing startups to the next level and facilitate a higher density of entrepreneurs. Patrick Gagné, the CEO of OSMO, who is co-leading the initiative, told BetaKit at Startupfest that Bonjour is looking to really accelerate Montreal’s startup ecosystem growth.

“Normally it takes anywhere between 20 to 25 years to develop a startup ecosystem. We want to see if we can make it quicker,” Gagné stated. “We’ve been at this for 10 years here in Montreal, the question we’re posing is can we accelerate this by gaining speed with the learnings that the other ecosystems have made.”

Creating scale-up support

Bonjour’s report found that more than 1,300 startups with more than 2,800 founders call Montreal home. The majority of those companies (38 percent) are in the startup phase, with only six percent of the companies considered established.

Liette Lamonde, executive director of Montréal Inc., who is also co-leading Bonjour alongside Gagné, told BetaKit that the main goal of the organization is to develop scale-up support, as well as more opportunities for local companies to reach global markets. Bonjour is looking to become a central hub in Montreal – similar to Kitchener-Waterloo’s Communitech, Toronto’s MaRS Discovery District, or Startup Calgary – in order to more quickly facilitate connections and opportunities for early-stage companies. Lamonde noted that one way Bonjour has been doing this is by building up local players, but also creating more global connections through trade missions and partnerships with international organizations.

RELATED: Carleton University receives $1 million in FedDev Scale-Up Platform funding

“We like to compare with comparable cities including Stockholm, Barcelona, Tel Aviv, Amsterdam, Kitchener-Waterloo, and Toronto. We strongly believe that…if we can take some key elements from what they’ve built, their experience over the last five to 10 years, we can accelerate our growth or development,” Gagné stated.

He also noted that through Startup Genome, Bonjour has been connecting and partnering with hubs in places like Amsterdam, which has seen success in its efforts to grow its own startup ecosystem, reflected in Startup Genome’s recent report where the European city saw the largest rank gain.

Startup Genome CEO Jean Francois Gauthier told BetaKit earlier this year, that despite Montreal dropping in rankings over the past few years, he sees Montreal doing increasingly better and better. He noted that Montreal is not far behind its fellow global hubs, and predicted it coming back in the rankings.

Capital not available

One persisting issue for the Montreal startup community, however, is capital. Bonjour’s report found that funding is only available to a very small number of startups. Only 12 percent of startups received venture capital investment over the past year.

In 2018, $1 billion was invested in Montreal companies in a total of 74 investment rounds. However, 15 of those transactions received the majority of that money, collecting 89 percent of total investment. Despite being the largest group, pre-startup and startup stage companies only brought in three percent of the distributed capital, according to Bonjour.

“We’re at a crossroads and everyone feels it and everyone wants to play a part. We still have to convince more.”

The majority (in terms of number) of investment rounds were for seed stage startups with 26 rounds bringing in $26 million. This was followed by 12 Series A rounds, with more than $110 million and eight Series B, with a collective $94.5 million. The largest amount of capital, though, came from two private equity rounds, which brought in more than $300 million and two Series D deals with $180 million.

The big winners (most funded) in Montreal in 2018, according to the report, were: Enerkem, which raised $287 million CAD; Lightspeed, which went public and surpassed a $1 billion valuation; Hopper raised a $100 million CAD Series D; Plusgrade saw $200 million in funding; and late-stage biopharmaceutical Milestone Pharmaceuticals raised $80 million.

LightspeedIPO

Lightspeed at the TSX on the day it went public. Courtesy TSX.

With these later-stage Montreal companies coming out on top it’s not surprising that more than 70 percent of those surveyed by Bonjour called financing their main obstacle.

When looking at the investment landscape in Montreal, Bonjour’s report found there are 23 active investment firms in the city. The venture firms included Panache Ventures, Power-associated Portag3, Inovia, Real Ventures, BrightSpark, and Front Row Ventures, among others. The report also pointed to three public investment groups: Fondaction, Fonds de solidarité FTQ, and Investissement Québec. Bonjour also noted some angel investor groups active in the ecosystem, but found that angel investment only accounted for $2 million in 2018.

Lamonde also pointed to the need for more government support in the community. She stated that while the City of Montreal and the provincial Quebec government are currently supporting Bonjour and the startup ecosystem, federal support is lacking. She pointed to the fact that Quebec’s Regional Development Agency (RDA), Canada Economic Development for Quebec Regions (CED) – the equivalent of FedDev Ontario and ACOA – , did not receive any additional money in the most recent federal budget.

“We were hoping that [CED] would [receive more funding] but they didn’t,” she told BetaKit. “So either they give us more and they have to cut other players, or we go directly to Ottawa through Innovation, Science and Economic Development Canada (ISED). That’s what we were told, ‘go through ISED, try to find some program where you can maybe find some money.'”

RELATED: Southern Ontario startups, not-for-profits receive $1 billion FedDev funding

“The [provincial] government we have right now is actually gung-ho on entrepreneurship,” Gagné added. “They’re actually pedal to the metal, ‘let’s place our bet on the strong players in the ecosystem.’ Conversely, we’ve had little monies from federal compared to other provinces [like] Ontario.”

Gagné pointed to the $52.4 million invested in the Scale-Up Platform that saw the federal government, through Ontario’s RDA FedDev, hand out money to Communitech, MaRS, and Invest Ottawa.

“We don’t see that kind of money flowing into Montreal,” he stated, noting though that Bonjour is working to develop its relationship with CED in order to facilitate that kind of support.

The organization has also been working to increase support from corporations. While some larger corporations like Samsung, Microsoft, and L’Oreal have been opening offices and investing in the community, Lamonde said more is needed.

“We’re at a crossroads and everyone feels it and everyone wants to play a part. We still have to convince more corporates to get closer to the startup ecosystem, I think most of them are still just looking and not exactly knowing how to connect and [Bonjour Startup Montreal] can do that better,” she told BetaKit.

Makeup of the ecosystem

Bonjour’s report also made note of the growing number of mergers and acquisitions, which can be markers of success, involving Montreal startups. It found that the number had more than quadrupled from four transactions in 2013 to 18 in 2017. Eight “established” startups also completed an IPO in that time frame.

Bonjour’s report also broke down the type of founders that make up the city’s ecosystem. It found that 64 percent of startups have more than one founder with 26 percent of those having at least one female founder. Even with more than a quarter of the companies founded by a woman, female founders only attributed for 15 percent of founders overall in Montreal.

It was discovered that more than half (57 percent) of all startups in Montreal were co-founded by someone born outside of Quebec. And, predictably, AI proved to be a focus for many Montreal startups, with 66 percent planning to, or already using, the technology and 51 percent noting its implementation as a priority.

Bonjour conducted its report alongside the Institut d’entrepreneuriat Banque Nationale of HEC Montréal, in collaboration with Montréal Newtech, the Mouvement des accélérateurs d’innovation du Québec, Montréal International, as well as several other partners.

With files from Douglas Soltys

Image courtesy Bonjour Startup Montreal via Twitter

Meagan Simpson

Meagan Simpson

Meagan is the Associate Editor for BetaKit. A tech writer that is super proud to showcase the Canadian tech scene. Background in almost every type of journalism from sports to politics. Podcast and Harry Potter nerd, photographer and crazy cat lady.