A week ago, Canadians, border to border, celebrated or reflected on Canada Day. We hope your day was filled with maple syrup, Tim Hortons, and passionate discussions about the National Hockey League series. We wanted to highlight why Canada is not only a wonderful place to live, but also a wonderful place to invest.

Amplify makes roughly 80% of its investments on Canadian start-ups. And we are not alone. Between 2017-2019, the deal volume in Canada increased at a CAGR of 38%, which is 13% more than the United States. That’s a 3x growth since 2013 for the Canadian venture sector1. Some of the most recent successful exits include the BC-based biotech company Abcellera, which, with a market cap of $6.7BN on Nasdaq, is the largest exit on record as well as Nasdaq Inc.’s acquisition of Newfoundland-based fintech company Verafin for CAD $3.49BN2.

We believe this increased activity is due to Canada’s access to the right talent, its ecosystem, and the availability of capital. Below, we expand on the reasons for the continued growth of the Canadian venture sector.

The talent

Canada is a world leader in attracting top talent. Based on the IMD 2019 World Talent Ranking global assessment, Canada ranked in the top 5 in its ability to attract local and foreign talent, and in the top 15 in skills and competencies readily available. This availability of talent and skills means that Canada is at an advantage when it comes to forming entrepreneurs that will develop new technologies and new business models relevant to today’s society. It also means Canada is well positioned when it comes to accessing the talent and leadership necessary to help grow these young companies. From an investor point of view, it means we have the brightest minds looking at how capital and resources should be allocated based on what solutions are most likely to succeed.

This availability of talent should not come as a surprise. Canada offers access to high-quality affordable education, resulting in an extremely educated population. According to the OECD, in 2019, Canada was the second country, second only to Korea, with the highest percentage of its population having obtained a post-secondary education degree. Actually, Canada has been amongst the top 3 countries for tertiary education for at least 30 years - the data from the OECD does not go further back!

The ecosystem

You might know the expression “it takes a village to raise a child”. Well, it’s quite similar for start-ups: it does take a variety of stakeholders and factors to grow a new company successfully.

It requires having incubators, and then accelerators, to help founders move from an idea to a growing company. It means having mentors available to provide the expertise such founders might lack. Government organizations need to offer non-dilutive funding, and investors need to offer capital, at all stages of growth and in all formats, from equity to convertible notes to debt. Universities also play a role by opening up their labs for new technology to be tested and improved. Without every stakeholder making their part, a start-up has little chance of either surviving or achieving the desired scale.

Canada now has more than 250 business incubators and accelerators(3). The proportions of deals across the various stages, from seed to Series E, is showing signs of maturity, indicating that start-ups across all stages are getting the right level of support from investors. Canada is also the host to numerous international tech and VC events, such as the Startupfest in Montreal, the Extraordinary Future in Vancouver, and the Invest Canada in Toronto(1).

All these suggest the Canadian venture ecosystem is gaining maturity and has a large variety of stakeholders involved in its success.

Capital

As a high-income country, Canada has access to large pools of money from wealthy individuals and large organizations. Private institutions - primarily companies in the financial services sector like banks and asset managers -, public institutions - like BDC, CDPQ, and MEDTEQ - as well as public-private partnerships - like Fonds de Solidarité FTQ, FondAction, and Fonds Innovexport - are investing their capital into Canada’s most promising ventures.

In addition to the independent VC funds, companies are also launching their own investment fund. Examples include Telus Ventures, Shopify’s Sustainability Fund, RBC Ventures, TD Ventures amongst others.

In total, around CAD $4.4BN was invested across 509 deals in 2020(2).This was the second highest year for the Canadian venture sector, second only to 2019, which saw CAD $6.9BN invested across 539 deals, an increase of 69% compared to 2018. In 2019, in Ontario, over a third of the deals were equivalent to CAD $2.77BN; in Quebec, a quarter of the deals was worth CAD $1.6BN(4).

Looking ahead: areas for improvement

Canada has great foundations that will allow it to continue being a key player in the venture ecosystem.

Where it needs to improve is on diversity, considering that only 4% of VC dollars went to women-founded companies in 2019(5), and only 15% of VC Partners are women, with gender representation decreasing with seniority(6). These statistics exclude other minority groups, which one can only be assumed to be of similar or lower representation. We simply won’t get to diversity in startups without diversity in those who are allocating capital.

Finally, if Canada wants to be a leader in social and environmental advancements, it is important that new or existing funds focus on impact in addition to financial returns. As a Country, the more funds we have that are focused on sustainable social and climate change, the more sustainable and healthy our ecosystem will be. We advocate that the Canadian venture ecosystem can do more with its dollars - an impact in addition to financial returns benefit both investors as well as our great Country.

So, we celebrate Canada Day for the great opportunities we see here and how we can do better with our capital to ensure a future we’re all proud to live in. We hope you’ll join us in embracing the great possibilities Canada has to offer.

Sources:

CB Insights
CVCA 2020, https://www.cvca.ca/research-insight/market-reports/year-end-2020-canadian-vc-pe-market-overview/
White Star, Canadian VC Landscape, 2019, https://www.slideshare.net/rozetaa/white-star-capital-canadian-venture-capital-landscape-2019-205143902
Venture Capital Journal, 2020, https://www.venturecapitaljournal.com/canadian-vc-landscape-grew-by-3x-in-6-years/
CFA Institute, 2019, https://blogs.cfainstitute.org/investor/2019/07/01/the-venture-capital-gender-gap-what-qualifies-as-female-content/
Female Funders, 2019, https://femalefunders.com/women-in-venture/