State of the Markets Inside Views on the Health and Productivity of the Innovation Economy - Silicon Valley Bank
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State of the Markets Inside Views on the Health and Productivity of the Innovation Economy Canada Special Edition 2019
State of the Markets: Canada 2019
Early Days for a Perfect First Market
To mark our official entrance into the Canadian market, Silicon Valley Bank is proud to present
this special edition Canadian State of the Markets report. We publish these reports quarterly
Venture in Canada:
across the globe as a data-driven lens into the innovation economy, and this quarter, we’re 3 On the Global Stage
excited to do a deep dive on Canadian tech as well as share a comparison to what we’ve seen in
the other tech hubs.
While making this report, we heard VCs call Canada “the perfect first market” for a startup.
Canada is culturally diverse and multilingual, with a rich technical talent pool, as well as home to Tech Investment:
leading universities and a source of consistent government support for technology. It also boasts 7 Climbing from All Sides
proximity and similarities to the world’s largest economy just south of the border, which proves
advantageous for international capital and expansion. For these reasons, it’s easy to see why
Canada has now stepped squarely into the global spotlight.
However, despite venture dollars hitting their highest point this year at $3.8B, it is still an early Exits: Aiming Higher
ecosystem, and we’re seeing a “valley of death” for companies as they scale beyond their first 11 Could Turn a New Leaf
few rounds, forcing a historical “exit-early” mentality. With the availability of growth rounds
spiking this year, I am hopeful that we’re witnessing a mindset shift that could break the cycle.
Increased capital, coupled with technical “dry-powder” in artificial intelligence (AI), could
become the foundation for a flywheel of talent and capital to be recycled back into Canada for
years to come. 15 Appendix
Barbara Dirks
Head of Canada
Silicon Valley Bank
State of the Markets: Canada Special Edition 2019 2
Venture in Canada:
On the Global Stage
State of the Markets: Canada Special Edition 2019 3
A Steady Climb: Building Venture in Canada
On the backs of strong universities and consistent government support for R&D, venture investment
has thrived in Canada, rising nearly fourfold this decade. Programs remain aimed at continued flows
of both capital and talent into the burgeoning ecosystem.
Top Canadian Universities by Venture Capital Investment in Canada
World Rank in Computer Science1
$4.0B
#18 #34
Established: 1827 Established: 1878
Location: Toronto, ON Location: Montreal, QC
$3.0B
Enrollment: 72,202 Enrollment: 37,311
#35 #41 $2.0B
Established: 1915 Established: 1957
Location: Vancouver, BC Location: Waterloo, ON
Enrollment: 53,566 Enrollment: 32,395
$1.0B
#79 #98
Established: 1821 Established: 1908
Location: Montreal, QC Location: Edmonton, AB
$0.0B
Enrollment: 31,060 Enrollment: 31,844
2008 2010 2012 2014 2016 2018
Notes: 1) Universities in Top 100 of Times Higher Education World Rankings for Computer Science in 2019.
Source: Times Higher Education, university websites, PitchBook and SVB analysis. All data in CAD. State of the Markets: Canada Special Edition 2019 4
Canadian Venture Powers On, Matching Other Hotbeds
Venture investment in Canada crossed the billion-dollar mark in 2011 and has shown no signs of
slowing, now matching innovation powerhouses like Israel and the fourth best-funded state, Texas.
Canada: Venture Investment Germany: Venture Investment Israel: Venture Investment
$5.2B
$4.0B $4.0B $4.0B
$50M+ Rounds $50M+ Rounds $50M+ Rounds
Market Size Pushes Startups to Think Globally
Despite covering six time zones (and two languages), Canada’s limited market size makes it difficult
to scale a venture domestically. But having the world’s largest economy just south of the border
provides an advantage over others where international expansion means overcoming fragmentation.
Countries Scaled by GDP: North America, Europe1 & SE Asia2 Canadian SVB Clients’ Fund Flows
by Region and Direction: 2018
Sweden Israel
USA Europe ROW5
Canada Germany 80%
Northbound Funds from USA to Canada: 84%
60%
40%
USA
20%
Outflows4 Inflows3
Singapore
USA EM EA ROW
0%
20%
Notes: 1) Europe includes EU plus Switzerland and Norway. 2) Southeast Asia includes ASEAN countries.
3) Inflows primarily include revenue and fundraising. 4) Outflows primarily include payments to foreign
suppliers and cost centers. 5) Rest of World.
Sources: The World Bank, SVB proprietary data and SVB analysis. State of the Markets: Canada Special Edition 2019 6
Tech Investment:
Climbing from All Sides
State of the Markets: Canada Special Edition 2019 7
Start-up to Scale-up: Canadians Face “Valley of Death”
Investment continues to climb for startups, but funding gaps remain. Early stage activity remains
abundant: almost two-thirds of deals were for less than $1M. Whiletheir US counterparts raised more
than 60% of capital through $25M+ growth rounds, Canadian firms raised just 40% since 2016.
Tech Venture Deal Count (% of Total): 2016–2018 Tech Venture Capital Inv. (% of Total): 2016–2018
70% 70%
USA CAN USA CAN
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
$0-$1M $1M-$10M $10M-$25M $25M+ $0-$1M $1M-$10M $10M-$25M $25M+
Sources: PitchBook and SVB analysis. All data in CAD. State of the Markets: Canada Special Edition 2019 8
Attracting the Right Foreign Capital and Talent
Overseas capital and talent fills some of the gap remaining in domestic sources. Growth rounds have
historically relied on foreign participation (more than 80% of which is from the US). And even with
few homegrown unicorns recycling talent back, universities are providing strong international talent.
Canada Tech Venture: Participation by International Students at Canadian Universities
Foreign Investors by Round Size: 2010–2018 on Study Permits: 2010–2018
100% 600k 30%
Students from Rest of World
Students from China
$25M+ Students from India
500k 25%
80% Year-over-Year Growth
$10–25M
400k 20%
60%
$1–10M
300k 15%
40%
200k 10%
20% $0–1M Rounds
100k 5%
0% 0k 0%
2010 2012 2014 2016 2018 2010 2012 2014 2016 2018
Source: PitchBook, Canada Open Government and SVB analysis. All data in CAD. State of the Markets: Canada Special Edition 2019 9
As Growth Capital Arrives, Toronto Cements Its Place
Rounds of $50M+ doubled in Canada in 2018. Toronto firms led the charge, with eight of the 13
mega-rounds. In fact, more than 40% of all Canadian venture dollars now flow to the city. And with
a climbing share of company formation capital as well, Toronto has finally reached critical mass.
Canada Tech Venture: $50M+ Rounds by Province Toronto’s Share of Canada Tech Venture Capital
Invested Capital: Invested Capital:
14 50%
Manitoba Total Investment First Financings
Quebec
British Colombia 46%
12
Ontario 40%
41%
10
30% 33%
8
28%
6
20%
4
10%
2
0 0%
2010 2012 2014 2016 2018 2010–2014 2015–2018 2010–2014 2015–2018
Source: PitchBook and SVB analysis. All data in CAD. State of the Markets: Canada Special Edition 2019 10Exits: Aiming Higher
Could Turn a New Leaf
State of the Markets: Canada Special Edition 2019 11Overcoming the “Exit Early” Mentality
Canada has suffered from a lack of big exits, limiting the pool of talent and capital ready for hyper-
scaling. But companies chose further growth capital over early exits in 2018. Perhaps those rounds
(and their potential secondary transactions) can propel entrepreneurs to world-scale outcomes.
$10M+ Tech Exits by Size (% of Total): 2010–2018 Canada Tech Venture Capital:
$50M+ Growth Rounds vs. “Early” Exits
60% 40% 20% 0% 20% 40% 60%
15
$1B+ Exits $50M+ Rounds
$100M–$1B Exits
1
12
$100M–1B+ Exits
9
2
6
$10–100M Exits
3
3
0
USA IPOs USA M&A Canada M&A Canada IPOs
2010 2012 2014 2016 2018
Sources: PitchBook and SVB analysis. All data in CAD. State of the Markets: Canada Special Edition 2019 12Venture Relies on International Acquirers
As M&A activity climbed this past decade, the acquirer base remained consistent: Only one-third of
acquisitions of Canadian startups are by fellow Canadians, while US firms account for half.
Acquisitions and Buyouts of Venture-backed Canadian Tech Companies by Home Country of Acquirer
70
CAN USA Other
EMEA APAC Other
60
39 SF
UnicornsAI: An Opportunity for Canada to Lead the World
The now worldwide phenomenon started in large part in the halls of Canadian universities. As
artificial intelligence provides the platform of tomorrow, new industries are opening where Canadian
startups could find an edge and achieve the global-scale exits to drive the next chapter of innovation.
North American Venture Investment: 2010–2018
AI/Machine Learning Autonomous Vehicles Smart Cities & Micro-Mobility
$20B
$20B $20B $20B
Today Tomorrow Future
$15B $15B $15B
$10B $10B $10B
$8B
$5B $5B $5B
$2B
$0B $0B $0B
2010 2012 2014 2016 2018 2010 2012 2014 2016 2018 2010 2012 2014 2016 2018
World-Leading AI Researchers U of Toronto + Uber: Self-Driving Car Group Toronto + Alphabet: Sidewalk Labs
Geoffrey Hinton Yoshua Bengio Richard Sutton Raquel Urtasun
Sources: PitchBook, company and university websites and SVB analysis. All data in CAD. State of the Markets: Canada Special Edition 2019 14Appendix
State of the Markets: Canada Special Edition 2019 15Authors
Barbara Dirks Steven Pipp, CFA Andrew Pardo
Head of SVB Canada Vice President, Research Sr. Associate, Research
bdirks@svb.com spipp@svb.com apardo@svb.com
Barbara Dirks is the head of Silicon Valley Steven Pipp is a Vice President based in Andrew Pardo is a Senior Research Associate
Bank (SVB) in Canada, serving the growing San Francisco responsible for capital markets based in San Francisco responsible for the
innovation economy of entrepreneurs, research and data-driven analysis of the capital markets research and data-driven
startups, and their investors. Based in Toronto, innovation economies that SVB serves globally. analysis of the innovation economies that SVB
Barbara leads and oversees all of Silicon Valley In this role, he has led research efforts serves globally. In this role, he supports
Bank’s activities in Canada. She chairs the exploring investment, fundraising and exit research efforts exploring investment,
supervisory committee for SVB in Canada. dynamics between the venture ecosystems of fundraising and exit dynamics in the global
the US, Canada, Europe, China and SE Asia. venture ecosystem.
Barbara joined Silicon Valley Bank in 2018,
having previously served in roles at the Royal Prior to his research role, Steven managed Prior to this role, Andrew was a Buy-Side
Bank of Canada where she was Senior Vice strategic advisory and valuation engagements Equity Research Analyst for a $100B+ asset
President of Network and Advisor Strategy in for venture-backed technology companies as manager based in the Bay Area. His area of
personal and commercial banking. part of SVB Analytics. Before joining SVB, coverage spanned the domestic and
Steven worked in Minneapolis as a consultant international Financials sector. Andrew earned
Barbara holds a bachelor’s degree in political and entrepreneur with a focus on clean energy a Bachelor of Science in accounting from
economy and economics from the University of technology. Loyola Marymount University.
Toronto. She also earned a bachelor of laws
degree and a master’s degree in business Steven earned a Master of Science in Finance
administration from the University of Western from Boston College and a Bachelor of Science
Ontario, London. In 2018, Barbara was in Business from the University of Minnesota.
featured as one of the most influential In addition, he holds the Chartered Financial
Torontonians in Toronto Life magazine. Analyst (CFA) designation.
State of the Markets: Canada Special Edition 2019 16Disclaimers
This material including, without limitation, to the statistical information herein, is provided for informational purposes only. The material is
based in part on information from third-party sources that we believe to be reliable but which have not been independently verified by us,
and for this reason, we do not represent that the information is accurate or complete. The information should not be viewed as tax,
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State of the Markets: Canada Special Edition 2019 17About Silicon Valley Bank
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