Sunday, June 16, 2024

Closing the gap in Canadian exits

Techvibes reposted some extensive research from the folks at MaRS on exit outcomes in Canada along with a long list of observations and recommendations for all of us building startups in Canada.

There’s much I dislike about this research. For one thing, it’s all very backwards-looking. Also, seeking the insights of a fund that has long since run out of capital and stopped making investments (in Canada or anywhere) just because they have the historical high water mark in terms of number of US investments seems silly. Finally, the conclusion that we need to go move (in whole or in part) to the US is just downright annoying.

But let’s park those concerns and focus on one issue: Exit sizes.

In the last five years:

  • There were 2,300 exits in the US vs. 183 in Canada.
  • The average exit was $ 82M in the US vs. $32M in Canada
  • The median exit was $ 384M in the US vs. $100M in Canada

You’ve probably noticed the Canadian amounts are smaller (3.85x smaller…). Looking back, I can see why our exits might have been smaller. Our companies have historically raised a lot less than their US competitors. Also, before the Internet (and SaaS) came along, Canadian companies had to move closer to their customers in order to scale (this is something that is discussed at length in the MaRS research, but again, this is a backwards looking and only partially relevant today).

Fast forward and here’s what I see:

There are NO BORDERS in the capital markets. Canadian companies can and do raise as much as their US peers. Witness:

Having been on both sides of the table I can tell you that American VCs are more interested than ever in making investments in Canada. I am contacted regularly by US investors looking to find great companies up here.

The point here is that there’s no longer any reason why our companies should sell for ~ 4x less than US companies. We are better than that. We can raise the capital. We can find, import or grow the talent. We have $B unicorns, so that means we’re cool. And we’ve done it before. At one point Blackberry was worth over $ 70B.

Canada has global leaders in other industries. Particularly, banking, real estate and energy. There’s no reason why we shouldn’t have more in technology. The three companies listed above are all examples of companies that find and serve their customers remotely. It doesn’t matter where you’re based.

My sincere hope is that five years from now when this research is refreshed, that we have made major progress in closing the exit size gap. The only way to do this is if we hunker down, be patient and build long-term market leaders. Don’t sell early. Keep growing!

Flickr photo via user kurayba 


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Mark MacLeod
Mark MacLeod
Mark is the CFO and Chief Corporate Development Officer at FreshBooks. He was also a General Partner at Real Ventures, Canada's largest and most active seed VC where he invested in SaaS and e-commerce.


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