Canadian Tech Ecosystem in the Past 20 Years. A Closer Look into Deloitte’s Technology Fast 50 Program Trends

Insights from OV’s John Ruffolo & Soha Yasrebi

Canada has a longstanding history of technological innovation with Nortel’s dominance in telecommunications in the 1980s and 1990s, and BlackBerry’s dominance in the smartphone market in the 2000s. For the past 20 years, Deloitte’s Technology Fast 50 program has been at the forefront of this technological innovation, celebrating Canadian companies’ high growth and entrepreneurial spirit. The program produces an annual ranking of Canada’s 50 fastest-growing technology, media, and telecommunications companies with the highest percentage revenue growth over a four-year period.[1] This year, on the program’s 20th anniversary, the OMERS Ventures team, in collaboration with Deloitte, had the opportunity to take a closer look at the annual list and its evolution since the program’s inception. We examined company metrics such as sector, region, capital structure (public vs. private backing), and revenue growth trends, and used our analysis of the Fast50 sample population as a proxy for the Canadian tech ecosystem’s development over 20 years. Below are some of our findings and conclusions from this study.

Software is King

Our first observation from the Technology Fast 50 program was that the ability to generate significant revenue with capital efficiency has led to the emergence of a large number of fast-growing software companies. More software companies have been recognized over the past 20 years than any other sector, or even than all other sectors combined in recent years.

Staying Private Longer

The second trend we observed was the increase in the percentage of private companies in the program. With the emergence of “Unicorns”, companies with over $1 billion valuation, public market investors are pushing companies to wait longer before going public and injecting prudence into the IPO process. Successful startup businesses in search of capital are also finding an abundance of private market opportunities that do not carry the burdens of public market disclosures and regulations. According to the Economist, the average age of companies that went public in 2014 was 11 years old, compared to four years in 1999.[2]

Canada Becoming an Innovation Nation

On a regional level, there was a strong presence of companies in the program from the GTA, Southwest Ontario, Quebec and British Columbia. Over the past few years, major Canadian cities such as Toronto, Vancouver, Montreal, Ottawa and Waterloo have been identified as leading startup hubs in the world in terms of funding, global connectedness, technical talent, founder ambition, and strategy.[3] Like San Francisco and the Bay Area, Toronto and Waterloo form a corridor of startup innovation that is well connected to the global startup community. The province of British Columbia boasts more than 100,000 people working in the tech sector, with Vancouver being home to between 2,100 and 2,700 active tech startups.[4] Montreal is one of the main artificial intelligence strongholds in the country and Ottawa, home to Shopify, promotes itself as the country’s capital of SaaS (software as a service).

Additionally, Canada is home to world-class universities such as the University of Toronto (ranked 16th globally), and the University of Waterloo (ranked 24th in the world for computer science and information systems). University of Waterloo graduates are one of the most frequently hired employees in Silicon Valley followed by top U.S. post-secondary institutions such as the University of California, Berkeley and Stanford University. This has provided Canadian entrepreneurs and other global companies with access to a highly educated workforce available for less capital. For example, software engineers in Toronto are 41% cheaper than their peers in Silicon Valley.[5]

Canada’s Scale Up Problem

Despite all this success, Canada is yet to give birth to many homegrown unicorns. For instance, while there are up to 4,100 active startups in Toronto, none are valued at over a billion dollars.[6] According to a study done by the Business Development Bank of Canada, Canada has been slow to increase the percentage of medium-sized companies (more than 100 employees) and the percentage of businesses that grow to a hundred or more employees has been decreasing since 2001.[7] Analyzing the dataset of all businesses (not just technology) in Canada between 2001 and 2013, over 82% of companies have remained mid-sized year over year with less than two percent growing into large companies (greater than 500 employees) and nearly 13% have shrunk back to small business status (with less than 100 employees).

Concurrently, examining the average revenue of the Technology Fast 50 program’s top companies (excluding Blackberry), we can observe that the Canadian tech ecosystem has not experienced notable growth in terms of size and revenue. Blackberry had been the crown jewel of the Canadian tech ecosystem, with a remarkable growth in revenue from $98 million in 1998 to $20 billion in 2011.

So, what can be done to foster Canadian companies to become major players in the global tech ecosystem?

Over the past few years, the challenges of access to capital and talent acquisition have alleviated significantly. Canada has become one of the main destinations for foreign tech talent. Government programs such as the Scientific Research and Experimental Development (SR&ED) tax incentive program and the Venture Capital Action Plan (VCAP) have contributed to growth in Canada’s startup ecosystem. Capital flowing to Canadian startups by local and foreign venture capital firms, as well as more traditional Canadian corporations and asset managers, continues to grow. In the first three quarters of 2017, there were 431 venture capital deals with total amount invested of $2.6 billion, and a record 13 mega-deals (deals over USD $50.0 million), surpassing the total of 10 mega-deals in 2016. Of the aforementioned amount invested, the information and communications technology sector captured the largest piece, totaling $1.8 billion invested across 271 deals, representing 69% of total dollars invested, a record high compared to the past four years.[8]

Regardless of these developments, many Canadian companies reach $10 million in revenue and then plateau, get acquired, or at worst, do not survive. With over 1.9 million Canadian businesses, only a few find their way to the global business markets. Canada does not have a startup problem — it has a scale up problem. Our country needs more multi-billion dollar companies and leaders that can compete and grow in the global economy. This has important implications for Canadian policy makers who need to not only support “start-ups”, but also their “scale-ups”. Moreover, Canadian CEOs and executives should be part of the decision making process, further tailoring public policies to bolster high-impact global companies. The Council of Canadian Innovators’ mandate is exactly that, dedicated to helping high-growth Canadian technology firms scale up globally by ensuring that Canadian tech and public-policy leaders are working together to improve Canada’s innovation outputs.[9] It is only with the right policy, investment focus, and technical talent, that Canada will be able to nurture robust global players.

[1] “About the Technology Fast 50 program,” Deloitte Canada

[2] “To fly, to fall, to fly again,” The Economist, July 25, 2015

[3] “The 2017 Global Startup Ecosystem Report,” Startup Genome

[4] “Startup Genome Report Ranks Vancouver as Canada’s Top Startup Hub, 15th Globally,” Betakit, March 15, 2017

[5] “The 2015 Global Startup Ecosystem Report,” Startup Genome

[6] “Canada is North America’s up-and-coming startup center,” TechCrunch, April 20, 2017

[7] “The Scale Up Challenge: How Are Canadian Companies Performing?” Business Development Bank of Canada

[8] VC & PE Canadian Market Overview Q3 2017, Canadian Venture Capital & Private Equity Association

[9] The Council of Canadian Innovators (CCI) is the 21st century business council exclusively focused on helping high-growth Canadian technology firms scale-up globally.