The Canadian venture capital industry has seen steady increases in deal size as well as deal volume since 2009 with an all-time high of $2.365 billion in 2014. A majority of the funds invested came from government-backed sources with a total commitment of $832 million, which shows the continued effort to promote innovation through entrepreneurship. However, The Global Startup Ecosystem Ranking 2015 by Compass revealed that on a relative basis Canada’s growth in venture funding is not enough to keep up with the rapid development in other nations. Looking at the leading Canadian startup ecosystem Toronto, it becomes apparent that access to venture capital is a major hurdle in providing startups with the resources they need to succeed. Average deal sizes in seed funding rounds as well as Series A rounds are significantly below the North American average, potentially leading to a weakened competitive position of Canadian startups in a global context.
A study conducted by Industry Canada named The Performance of Canadian Firms that Received Venture Capital Funding and published in 2013 just shows how important venture capital funding can be by comparing the performance of VC-backed firms since 2001 against the performance of firms that did not receive any venture capital over the same time horizon. One of the major findings of the study indicates that VC-backed firms survive longer than those who were not backed by external investors. But not only were the survival rates in favour of the VC-backed firms, but also differences in key operational metrics between the two groups displayed the favourable effects of venture capital. Revenue growth rates of VC-backed firms were significantly higher than those of firms without the benefit of VC funding. Similarly VC-backed firms tended to spend more financial resources on Research & Development, thus being able to remain competitive through product or service innovation.
Overall it can be said that it will be crucial for the future success of Canadian startups that access to venture capital must continue to improve.
Written by: Niclas Werthmoller
Infographic research and design by: Niclas Werthmoller