What the value of Canadian exits is telling us about the market.
Written by Laura Lenz, Partner, OMERS Ventures
I’m not sure you’ve noticed, but something incredible is happening in Canada. For an ecosystem that is still comparatively nascent compared with our neighbours to the south, the story we are seeing unfold shows that venture backed companies are achieving scale and sizeable exits at a velocity unseen ever before in our market.
Historically Canada has been strong at producing companies at the Seed and Series A stage, but we have lacked the funding infrastructure to support growth stage businesses driving towards $1B+ exits. And by growth stage, I mean companies at the $20M+ revenue phase of their growth. To some extent this has been addressed by the creation of funds like our own OMERS Growth Equity fund, iNovia Growth, Round13’s growth fund, Framework, and Radical Ventures among others over the past few years.
Previously, the lack of growth stage capital meant that Canadian founded companies either a: moved their headquarters to the US after a Series B financing or b: sold their business too early.
When I started in venture in 2004, the average Canadian exit was $67M. This trend continued into the next decade with the average Canadian exit not breaching the $100M mark. The previous fund where I worked, EdgeStone, was a proud Series A investor in standout Canadian enterprise software companies, including: Datawire, INEA, Protus, RapidMind, SlipStream, Taleo, Varicent, and Workbrain. All great Canadian companies that, looking back, one could argue exited too early based on the limited growth capital available. And not one of them reached a $500M exit valuation.
It is clear access to capital is no longer an issue. And the results of the maturing ecosystem appear to be coming to fruition.
For somebody who has been investing in the Canadian tech ecosystem, and previously advising these companies, for almost two decades, this paradigm shift that is occurring, illustrated below, is incredible.
Nine of the top 25 Canadian tech exits ever have occurred since January of 2020. It’s an astonishing data point that isn’t being talked about. And it’s something to celebrate!
If we look back over the top 25 exits from last two decades in the Canadian tech ecosystem, the deals in 2020 and in 2021 so far already represent 55% of the total value. The last 14 months of exits in Canada has been more valuable than the last two decades combined. Some may say that’s the overall market, sure, that is definitely a contributing factor. But the growth in revenue, the scale of operations, and the category creation that is happening in Canada right now is incredible.
Both the frequency and the size of exits is rapidly increasing which makes it a very exciting time to be investing in Canadian tech.
Overall, Canadian exit momentum is at an all-time high and we could be hitting that inflection point of exponential growth in Canadian exits.
Interestingly, only 50% of these exits in 2020 and 33% in 2021 were from Toronto, indicating that you don’t need to be a Toronto founder to achieve a top Canadian exit. In fact, my colleague Brian recently wrote a post about why it may actually benefit SaaS founders to build outside major cities.
It feels appropriate to give a shoutout to Winnipeg, Calgary and St. Johns for their first top 25 Canadian exits.
- St. John’s, Verafin, acquired by NASDAQ for US$2.75B, #2 overall
- Calgary, Benevity, acquired by PE firm HG Capital for US$1.1B, #4 overall
- Winnepeg, FarmersEdge, IPO’d at a valuation of US$545M, #13 overall
Stepping away from examining the top 25 exits, there has been considerable IPO volume recently compared to the last two decades. To note, there were 5 tech IPOs in the 2000s decade, 7 tech IPOs in the 2010s, and over 10 since January 1, 2020. This trend will likely continue as there are several more companies preparing to go public in Q2 and Q3.
We shall be tracking this trend with interest. Ultimately, it is a good time to be a founder in Canada!
Note (updated March 13th): We specifically looked at VC backed tech exits in Canada, and exclude private equity backed companies, natural resources, life sciences/biotech, infrastructure, etc.