US venture capital flows into Canadian tech start-ups


US investors pump money into Canadian tech startups, which raised last year a record $13.6 billion in venture capital, more than double a previous high in 2019, according to researcher PitchBook Data Inc.

Many are drawn north by thriving tech hubs in places like Toronto and Vancouver, where in recent years Alphabet Inc.

Google, Microsoft Corp.

Intel Corp.

and Uber Technologies Inc.

have opened or expanded research and development offices and campuses, say startup founders and investors.

That, in turn, has fostered a growing pool of skilled tech workers, which are becoming increasingly scarce in the United States, they say. Canada’s tech workforce is also benefiting from the departure of engineers, coders and software developers from Silicon Valley and other U.S. hubs, many of whom are taking advantage of remote work opportunities, at a cost of lower lives and more open immigration rules, they say.

At the same time, investors say, the presence of giant tech companies has helped cultivate university research labs and advanced training programs, often working in partnership with Google, Microrosoft and other backers.

Last year, the average deal size among Canadian tech startups rose to $15.5m, up from $6.8m in 2020, with funding rounds of $25m or more accounting for 75% of total invested capital, up from 51% in 2020, PitchBook said on Thursday. .

Despite a decade of rapid growth in its tech market, “Canadian startups have historically struggled to raise capital and have been relatively underfunded compared to their counterparts south of our border,” said Scott MacDonald, co-founder and managing partner of the Toronto investment firm. McRock Capital Company.

Over the past three years or so, MacDonald said, global venture capitalists, particularly U.S.-based investment firms, have noticed the maturing of the country’s startup ecosystems, clustered into large metropolitan areas of Ontario, Quebec and British Columbia, including other provinces. Since 2020, more than half of all venture capital deals in the Toronto area have included at least one U.S. investor, according to PitchBook.

OSF Digital, a Quebec-based software company that helps retailers transition to e-commerce, announced on Wednesday a $100 million Series C fundraising round, led by the U.S. growth and capital firm takeover of Sunstone Partners. Other investors in the round included Delta-v Capital and Salesforce Ventures, also U.S.-based companies, the company said.

“All of our investors are based in the United States,” said OSF Digital Managing Director Gerry Szatvanyi, adding that “once word got out that we were raising a third round, we got a lot of interest. from the market”.

The Covid-19 pandemic has accelerated digital transformation across industries, Szatvanyi said, “and we’re one of the few companies that’s innovated fast enough to not only keep up, but gain market share.” . The company currently has over 1,800 employees and 49 offices worldwide.

Kim Furlong, CEO of the Canadian Venture Capital and Private Equity Association, said enterprise IT startups in the cloud-based software-as-a-service market are currently capturing most of the revenue. venture capital investment in Canada, followed by artificial intelligence, life sciences and fintech.

The Toronto-based VC industry trade group tracked a record 752 seed funding deals last year, an all-time high, including 72 worth C$50 million (about $40 million) or more. Last year also saw a record eight venture capital-backed public market launches, including that of Coveo Solutions Inc.,

a C$1.1 billion listing on the Toronto Stock Exchange. Coveo is an enterprise AI software firm based in Quebec.

“US funds have crossed the border aggressively over the past five years, helping to fuel cohorts of investable companies,” said Margaret Wu, lead investor at venture capital firm Georgian, based in Washington. Toronto. More early-stage funding and support schemes have developed across the country, she said, while growth-stage funding has become available through local actors.

Steve Munford, Managing Director of Trulioo Information Services.


Trulioo Information Services Inc.

Georgian, which targets B2B software makers, last year participated in a $100 million funding round for Xanadu Quantum Technologies Inc., a local quantum computing company that Georgian first backed in 2019 Georgian was also an early investor in Shopify. Inc.,

an Ottawa-based e-commerce company with a market capitalization of approximately $73 billion.

Steve Munford, chief executive of Vancouver-based identity verification startup Trulioo Information Services Inc., said many Canadian tech companies are staying independent rather than trying to cash in with an initial public offering or other exit. Instead, they have bigger ambitions to become global leaders in their markets. “It attracts global capital,” he said.

Like OSF Digital, much of Trulioo’s capital comes from US companies. Last summer, Trulioo raised $394 million in a Series D funding round led by TCV, a growth capital firm based in Menlo Park, Calif., which valued the company at $1.75 billion. of dollars. Other investors have included Goldman Sachs,

American Express Ventures, Citi Ventures and Blumberg Capital.

“You see Canadian tech companies growing and profitable, disrupting very large markets,” Munford said.

Write to Angus Loten at [email protected]

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