Status of the Canadian Fintech Landscape
Leading up to the 2018 Canada Fintech Forum, we did an assessment of the health of the Canadian fintech landscape and what we, as ecosystem players, can do to improve it. Having a strong fintech ecosystem is essential for cultivating innovation and growth. It drives better solutions for consumers, it stimulates entrepreneurship, creates jobs and improves financial institutions more broadly.
We refer to “FinTech” companies as those that leverage technology to offer innovative solutions across the financial industry.
FinTechs operate across a variety of subsectors, such as:
- Insurance (Insurtech)
- Banking and payments
- Credit and lending
- Wealth management and personal finance
- Capital markets
- Data security
Obtaining accurate data on the fintech sector is a challenge as not all companies are indexed in databases. We were able to assemble a list of just over 600 privately held fintech companies in Canada. For comparison purposes, it is estimated that there are over 4000 fintech companies in the U.S. and over 1600 in the United Kingdom. Within Canada, unsurprisingly, the majority of the 600+ companies are headquartered in Toronto with a close second and third split between Quebec and Vancouver. One of our data partners, Hockeystick, has created a much more detailed map on fintech HQ locations and flow of venture funding in Canada, which you can view on their blog These 3 Provinces Are Driving Canadian Fintech Investment [Infographic].
Being an early stage investor, Luge Capital also tracks companies by stage and has seen a steady rise in new fintechs created every year. By the end of 2018, we expect to see about 100 new Canadian fintech startups created, representing about a 20% year over year growth.
Within fintech, we are seeing a few verticals that are more dominant than others. In fact, 59% of the fintechs fall within the top five categories: Payment, Blockchain & Crypto, Lending & Mortgage, InsurTech and WealthTech.
Out of the top five, the categories gaining momentum both globally and in Canada are Blockchain & Crypto companies, InsurTechs and WealthTechs. We are also seeing a number of Mortgage Tech startups rise up. The Payments and Lending (non-Mortgage) categories have remained relatively stable in terms of vertical share.
In 2017, Canadian fintech startups raised an aggregate $520M with almost 50% of that ($243M) being invested in three large financing rounds (Wealthsimple, Freshbooks and Lightspeed). This year, fintech startup investments are well on track to raise $600M with $500M having already been invested as of October 2018. Wealthsimple and League represented $127M of that $500M to date. For comparison, U.S. investors invested approximately C$6.7B in the first half of 2018 and, based on historical data, we expect the year to end with approximately C$10B being invested in U.S. fintech companies. By the end of 2018, U.S. investors will invest 20X the amount invested by Canadian investors in fintech companies in their respective jurisdictions. This is disproportionately higher than the size of the US population compared to Canada.
Out of 170 companies that received one or more funding rounds, the vast majority were at the seed stage. As for Series A+ stage companies, they received almost triple the investors’ wallet share.
Fintech Focused Funds
Although many tech VC funds will invest in fintech, fintech focused funds are a welcome addition to fuel the ecosystem further. There is approximately $600M under management across these six fintech funds. Framework Venture Partners and Luge Capital were two news funds created this year.
In Canada, we saw approximately $5.8B in fintech exits between 2017 and 2018. However, one transaction (Vista Equity Partners’ acquisition of D+H and its merger with Misys to form Finastra) contributed 89% of the aggregate exit value. In comparison, US exits between 2017 and H12018 totalled to C$24.96B.
Other Canadian exits between 2017 and 2018 include:
Collaboration of the Large Players
Ten years ago, partnerships between early startups and large banks or insurance companies were few and far between. We are excited about the shifting landscape. Large incumbents have customers, well-established brands and vaults of financial resources. As a venture capital fund with large financial institutions backers, such as Sunlife, Desjardins, CDPQ and La Capital and Le Fonds FTQ, we see first hand their desire to partner with early stage innovators. Below are a few of FI+Fintech partnerships established between 2017–2018.
To foster those partnerships and speedup their own innovation agendas, large institutions are building innovation labs, incubators and venture arms. Some of their initiatives are listed below:
A healthy ecosystem would not be possible without passion led organizations that work tirelessly to help stimulate the growth of fintechs, by supporting them and giving them places to unite, learn and collaborate.
What can we do to up our game ?
The Canadian fintech space is showing promising growth with an increasing number of new fintechs startups launching every year, more capital being deployed to fuel their growth and win win partnerships being created between FIs and early stage companies. That said, there is always room for improvement and below are a few ideas to help more early stage companies succeed and hopefully become Canada’s next unicorn.
- With more companies being created every year, more funding is needed to support them.
- It is hard to raise money as a startup without proof points. Having tax incentives for early risk takers such as angels to help startups prove their product market fit will add to the growth of the funnel.
- Regulatory bodies are working hard to enable fintechs, rather than slow them down. However, finding more ways to converge regulation between jurisdictions would save early stage companies time and help them grow.
- In August of 2018, a handful of financial services regulators from around the world published a document requesting feedback on a proposed new body called the Global Financial Innovation Network (GFIN). The aim is to promote global collaboration in policy making that drives innovation in financial services. Luge supports this type of collaboration and gladly provided input to this new initiative.
- Every fintech startup we meet wants help connecting to customers and partners.
- Helping fintechs grow outside of Canada is key to building success stories.
- Connecting regional fintech hubs with a national strategy will help our fintechs grow.
- Canada has great talent but for companies to grow, the talent pool also has to grow. Retaining bright foreign university grads and startups graduating from our accelerators will help.
- Lastly, startups will have a hard time competing for talent if large tech giants get generous tax credits for opening and office in Canada.
You can watch the video of the presentation from the Canada FinTech Forum here.
Please do not hesitate to reach out directly to us should you have any comments or suggestions!