Why we’re bullish on Western Canada’s startup ecosystem
Something special is happening in Canada’s technology ecosystem right now. We’re in the middle of an unprecedented wave of so-called “Mega Deals,” — financings greater than C$50M. And while Toronto and Montreal have been leading the charge in Canadian tech, if you look closely you’ll notice there’s a new kid on the block: Western Canada. Startups in the region have raised over $1 billion over the last year, ushering in a new cohort of inspirational role models for the region in the process.
The rise of Western Canada’s tech scene doesn’t surprise me. I’ve spent the last 5 years in British Columbia’s tech ecosystem in various capacities: a venture-backed startup, an accelerator supporting founders at the Creative Destruction Lab, and a Seed-stage fund investing in startups across Western Canada.
Throughout that time one thing has been clear to me: big and impactful businesses are being built across the country. What once was a contrarian thought is now coming into the mainstream. An ecosystem that by all accounts had previously been considered a “flyover” is now demanding the attention of investors and talent around the globe. And rightfully so.
Ecosystem Building
One of the things I’ve been fascinated by is understanding what makes an ecosystem tick. And if you look at any of the large and successful technology hubs around the world you can start to break down their success into the individual components that help sustain their flywheels:
- Talent;
- Local startup programming;
- Capital;
- Rising stars; and
- Success stories.
What’s missing from this dynamic is an important yet often underrated driver of economic growth: momentum. The narrative around an ecosystem is a critical factor that supports each of these components and helps drive an ecosystem forward. It has the ability to attract or deter experienced talent and capital providers from around the world. More importantly, a prevailing narrative (as long as it is based on the truth!) can have the powerful ability to instill a belief in current and future entrepreneurs that it is possible to build a category leader in their respective fields. We’re seeing this with Clio in LegalTech, Hootsuite in Social Media Management, Jobber in Home Services, Trulioo in Identity Management, and Symend in Collections.
Talent
Despite not every company becoming an eventual success story that inspires the next cohort of great entrepreneurs like the ones mentioned, each provide invaluable development opportunities for people within those companies who ultimately drive those stories forward.
The development of an ecosystem comes with the maturation and experience of localized talent pools. And it’s this recycling of talent, in addition to the natural pull of human capital into a particular city, that has driven the growth of many well-known technology hubs around the world. Maybe this dynamic will become less important over time with the globalization of talent pools but for now, this likely remains a crucial component of an ecosystem’s flywheel.
There are so many great examples I can point to from Charli AI and Form in Vancouver to Neo Financial in Calgary and Pivot Subscriptions in Saskatoon. These businesses are early-stage ventures in Western Canada that are being led by standout repeat entrepreneurs with nine-figure exits under their belts. Look at the individuals at each of these companies and you’ll see that each are bringing their wealth of experience back into their respective cities, attracting high-caliber talent in the process, and in part, driving the ecosystem forward.
Capital
Canada’s tech ecosystem as a whole continues to see strong growth in investment activity. 2019 was a banner year by all accounts with almost $6.2B invested over 539 deals, ~67% higher than the previous year and almost 3 times higher than where we were just five years earlier. Additionally, we saw a record high of 28 $50M+ Mega Deals accounting for 54% of all VC dollars. Ontario and Quebec continue to lead the country on this front but companies in Western Canada have been capturing a lot of the attention with many high-profile transactions.
As someone close to Western Canada’s tech scene, it’s starting to feel like the ecosystem is finally gaining momentum and digging into the numbers presents some interesting insights. We can see that the number of financings has exploded since 2010; up ~150% from that time. Additionally, we continue to see larger and larger financings. This isn’t unique to the region and is a common theme we’re seeing in venture across the world where dollars are getting concentrated into select opportunities. Since 2016, the number of financings greater than $10M has grown by 3x; an impressive feat given that this is happening in a market where early-stage financings have remained roughly flat.
Ecosystem Development
While there’s little doubt that high-quality businesses are being built in Western Canada, there’s a growing need and opportunity to support and focus on earlier stage businesses in the region who will eventually become category leaders in their respective fields. A common theme from my countless conversations with founders is the lack of early-stage capital in the region. I’m optimistic that this will change with a relatively new set of organizations that have come onto the scene to help drive the innovation economy forward.
Seed and early-stage capital providers like Rhino Ventures in Vancouver focusing on Western Canada, Conexus Credit Union launching a dedicated VC fund focused on the province of Saskatchewan, and the Opportunity Calgary Investment Fund led by the city of Calgary to spur transformative economic development in the city are playing a role in filling this void.
Accelerators and incubators like the Creative Destruction Lab with locations in Vancouver & Calgary and Co.Labs in Saskatoon are also playing a critical role in helping early-stage innovators launch successful ventures and contribute to regional economic growth.
As someone who was a part of the CDL-West team for the launch of the program at the University of British Columbia, I’m biased but believe in the ability for programs to shape an ecosystem for the better. Consider a city like Calgary. It has the highest number of patents per capita, with innovators in the city filing patents at triple the rate of the rest of the country. Organizations like CDL ultimately help get these core innovations out of the lab, commercialized, and set up for business success.
Paul Cubbon — Site Lead at CDL-West and Assistant Dean of Innovation at the UBC Sauder School of Business — framed the problem and opportunity well when he said: “CDL helps to harness government funding that goes into scientific research in our universities. When we look back in five years the question we’ll ask is ‘did we help get disruptive science out of the labs that actually had a big positive societal impact that wouldn’t have happened otherwise?’”
Early Innings
With all these points in mind, I continue to be encouraged by the developments I’m seeing in Western Canada. If you look back over the years, you’ll see the region has been particularly strong in a few key categories like (1) E-commerce / RetailTech with notable exits from Lululemon, Coastal Contacts, and SkipTheDishes and (2) FinTech with notable exits with Solium, HyperWallet, and TIO Networks.
Ultimately, these success stories have inspired a whole set of entrepreneurs that are helping to build momentum for the ecosystem. Within E-Commerce and RetailTech, high-potential startups include the likes of Elasticpath, Article, Indochino, Bold Commerce, Spocket, Commerce.js, Find AI, BlackSquare, etc. And within FinTech, we see companies like Symend, Bench, Instant Financial, Canalyst, FISPAN, Finn AI, Owl, Neo Financial, VoPay, ZayZoon, and many others doing interesting things.
Undoubtedly, these will continue to be important categories for many cycles to come but now more than ever it’s becoming clear that this current crop of rising stars will also inspire a whole new generation of companies in categories beyond these two.
The media headlines will always play a role in getting communities excited about the work being done in their respective ecosystems. But, it’s important to recognize that these are lagging indicators of success. Look closely and you’ll stumble upon a new set of exciting early-stage companies that are paving the way to become the next cohort of inspirational role models for the region.
Joining OMERS Ventures just over two months ago, I’m excited to play a part in continuing to back the best and brightest entrepreneurs across Canada. With the firm’s 10+ year history of supporting Canadian tech standouts with the likes of Shopify, Hootsuite, Wave, Hopper, and League, we continue to be excited about the opportunities across the country, and Western Canada is no exception.
And just like my colleague, Laura Lenz (Partner at OMERS Ventures), highlighted in a previous post, although our sweet spot is at the Series A and Series B stage, we know there are great opportunities outside of this range as well. Even if you think you’re “early” we’re always happy to meet with founders across the country with a big vision and big ambitions.
Sound like you? Let’s talk. @JohnNajafi / jnajafi@omersventures.com or llenz@omersventures.com / @lauralenz
Disclosure: OMERS Ventures is an investor in Hootsuite, Jobber, and Klue.
Note: The information in this blog post is provided for informational purposes. Under no circumstances does it constitute investment advice or an endorsement with respect to any investment strategy or company.
