Raising a Seed Round in Canada

I stopped by Notman House yesterday to visit the current Founderfuel cohort and share some thoughts on how to raise their seed rounds.

I thought I’d share some of the insights from yesterday for those of you thinking of raising your own seed round.

The VC Funnel

CB Insights recently looked at 1,027 companies that raised seed funding and tracked them to death/ exit.

  • 40% of companies that raise a seed round go on to raise a series A.
  • 80% of the companies that do NOT raise an A either die or become the living dead (self sustaining but not growing in the way their seed investors hoped).
  • 20% of the companies that do NOT raise an A achieve some kind of actual exit.

What we are seeing here are the effects of two market movements:

  • At the top of the funnel, an explosion in seed rounds (and funds for that matter) in recent years.
  • At the bottom funnel, the death of the soft landing. Profitable acqui-hires (popularized by Yahoo!) are less frequent. Savvy buyers know that they can often just wait and hire teams when they run out of money rather than “buy” them.

Getting seed Funded in Canada

We next looked at seed deal trends in Canada specifically. After several strong quarters, seed deal counts are down. Median seed deal sizes are approximately USD $1M.

Screenshot 2016-06-09 13.52.20

Some familiar names show up when we look at who the most active Canadian seed investors are.

Screenshot 2016-06-09 13.53.24

Expect to see some gaps in seed funding going forward. Real Ventures continues to be a seed stage specialist. But several of the other funds are focusing on series A & B going forward vs. seed.

Going beyond seed

Since most seed-funded companies don’t go on to raise more capital, I thought it would be interesting to look at the Canadian companies that did raise a series A to see what we can learn from them.

Screenshot 2016-06-09 13.55.20

35 Canadian software companies raised a series A in the last 12 months. Here’s what we learned about them:

  • On average they were ~ 5 years old when they raised the A
  • It took ~2 years from seed to Series A
  • The seed rounds for companies that raised an A were about 60% larger than overall seed rounds

That’s probably surprising to many readers. Most seed stage companies don’t raise 2 years worth of capital. This is why they die. Yes, there are other reasons (wrong team, product, timing, etc). But you can always keep addressing those shortcomings as long as you have money.

The bulk of the Canadian venture funds are focused on series A. So, it’s good to build relationships with them early in order to know what your company needs to look like to raise the A. Here are the most active series A investors.

Screenshot 2016-06-09 13.56.23

As I often say: It’s never been cheaper or easier to start something. It’s never been harder or more expensive to go all the way and win a market. The data here definitely supports that.

Canadian data was pulled from Pitchbook and analyzed by Rena Wang