Closing the gap in Canadian exits

Techvibes reposted some extensive research from the folks at MaRS on exit outcomes in Canada along with a long list of observations and recommendations for all of us building startups in Canada. There’s much I dislike about this research. For one thing, it’s all very backwards-looking. Also, seeking the insights of a fund that has long since run out of capital and stopped making investments (in Canada or anywhere) just because they have the historical high water mark in terms of number of US investments seems silly. Finally, the conclusion that we need to go move (in whole or in part) to the US is just downright annoying.

But lets park those concerns and focus on one issue: Exit sizes.

In the last five years:

  • There were 2,300 exits in the US vs. 183 in Canada.
  • The average exit was $ 82M in the US vs. $32M in Canada
  • The median exit was $ 384M in the US vs. $100M in Canada

You’ve probably noticed the Canadian amounts are smaller (3.85x smaller…). Looking back, I can see why our exits might have been smaller. Our companies have historically raised a lot less than their US competitors. Also, before the Internet (and SaaS) came along, Canadian companies had to move closer to their customers in order to scale (this is something that is discussed at length in the MaRS research, but again, this is a backwards looking and only partially relevant today).

Fast forward and here’s what I see:

There are NO BORDERS in the capital markets. Canadian companies can and do raise as much as their US peers. Witness:

Having been on both sides of the table I can tell you that US VCs are more interested than ever in making investments in Canada. I am contacted regularly by US investors looking to find great companies up here.

The point here is that there’s no longer  any reason why our companies should sell for ~ 4x less than US companies. We are better than that. We can raise the capital. We can find, import or grow the talent. We have $B unicorns, so that means we’re cool. And we’ve done it before. At one point Blackberry was worth over $ 70B.

Canada has global leaders in other industries. Particularly, banking, real estate and energy. There’s no reason why we shouldn’t have more in technology. The three companies listed above are all examples of companies that find and serve their customers remotely. It doesn’t matter where you’re based.

My sincere hope is that five years from now when this research is refreshed, that we have made major progress in closing the exit size gap. The only way to do this is if we hunker down, be patient and build long term market leaders. Don’t sell early. Keep growing!

  • Great post Mark, and totally agreed with your observations.
    It’s time to be on par with the US, if they are the measuring stick.

  • I am incredibly bullish on the Canadian startup ecosystem and believe that larger exits will come. However, I also think we need to dig in to this data a bit deeper.

    First, the US exit data will be skewed by the ‘outlier’ exits. For instance, the Whatsapp acquisition is larger than all the Canadian exits combined over the past ten years.

    Second, the Silicon Valley skews acquisition prices. If you talk to a VC in the SV they will tell you that they honestly believe in the premium of a company based there. Not just compared to Canada, but compared to anywhere else in the US as well. Personally, I think that this is a result of the talent in the SV combined with a more competitive market because of the critical mass of tech companies.

    Lastly, and I recognize that it is not popular to talk about, we don’t yet have the senior talent in Canada to have an abundance of massive companies. This talent tends to leave Canada at some point in their career – sometimes before it is even developed. It is also hard to recruit it from the US although we are starting to see a bit of that happening which is awesome. Personally, I think that there are some encouraging signs such as Hootsuite making a pledge to build in Vancouver, companies like Vidyard coming back to build in Waterloo after being in the SV and the numerous giants currently being built that are developing this senior talent whereas those opportunities didn’t even exist in Canada just five years ago.

    • Awesome comments Kevin. No question the outliers will skew the results. And of course VC is all about the outliers. We need some up here. That’s the point. And I think they’re coming. We’re certainly trying to build one at FreshBooks.

      Definitely hear you on the senior talent. We had to import our CTO from the Valley. Luckily, there’s a crap ton of experienced Canadians in tech there. Maybe bringing a few back home is in order.

      • That is awesome! I have been hearing more of this happening. One of our Vancouver companies recently recruited a VP Sales from the Valley. Apparently there are 350K Canadians in the Valley, I think what has kept them there in the past is a lack of opportunities back in Canada. That is changing.

  • There’s a lot to be encouraged about the Canadian startup ecosystem. In many ways, however, it is still work in progress so hoping we’ll see more improvement within the next five years.

    • Other than generating bigger exits, what do you feel we still need to work on?