Surge in Late Stage VC deals proves the point

Mark McQueen

Thanks to the good work of Kirk Falconer at PEHub, Canadian policy makers are getting an early look at the state of Canada’s innovation ecosystem, well before Finance Minister Bill Morneau puts pen to paper on the 2017 Federal budget:  ~500 financings attracted more than $3.5 billion in 2016, which is about double the quantum of capital that Canadian entrepreneurs raised from VCs in 2006 — more than three times that of 2010 — for example.  Something tells me that good things are happening now that Jim Flaherty’s Venture Capital Action Plan has had a couple of years to do its job (see representative prior post “Flaherty’s VCAP doing its thing with new IVP and iNovia fund announcements” Jan. 27-16).

According to preliminary data collected by Thomson Reuters, “Late Stage” Canadian deals scooped-up a relatively large amount of capital in 2016.  Companies raising rounds of more than $20 million attracted in excess of $2 billion; of that $2 billion, 60% went to companies raising more than $50 million in a single round.  Those are meaty-sized rounds.

You may have read in your local newspaper last summer (such as the KW Record or National Post) that Canada was suffering from a paucity of “late stage” capital, according to interviews and presentations being given by an executive of the Business Development Bank of Canada.  In a blog I penned in August, I simply said that “access to late stage capital” was not the “key innovation hurdle” facing Canada (see prior post ““Access to Late Stage Capital” is not Canada’s key innovation hurdle” Aug 30-16).  If the BDC was going to advise the government on the key priority for early stage entrepreneurs and investors, this was not the place to focus.

Thanks to Kirk’s work, Minister Morneau’s Budget-drafting team now has the facts that support my argument.  The crisis isn’t in the “late-stage” end of the sector.  Minister Morneau needs to focus on the early-mid stage of the innovation economy.  He could announce phase two of the VCAP, for example.  Better yet, his team could listen to the advice of the experts in the field at Canada’s 1400-strong Venture Capital and Private Equity Association (CVCA).

The patient is responding positively to the “course of treatment”, as they say in the medical world.  Please don’t screw things up with untested, unproven homeopathic medicines being recommended by people who’ve never spent a single hour in the trenches with early stage entrepreneurs (see prior post “Morneau Economic Growth Council recommending end of life-saving VCAP program” Dec. 22-16).


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One response to “Surge in Late Stage VC deals proves the point”

  1. Mark, I don’t know where you’re getting your data but the research I’m doing which will be coming out in February doesn’t show this to be the case. I’ve looked at the smallest 50 US Unicorns and compared fundraising habits to the fifty largest Canadian startups. In their first two years of fundraising, the average US firm raises $19 and $34 million. In Canada the amount is less at $13 and $27 million but this isn’t as big a gap as in later years. Starting in year three of raising funds, US funding ramps up to $55, $60, and $63 million. After that these US firms are raising around $80 million a year on average. In Canada years three to five average $16, $22, and $28 million and thereafter about $25 million on average. So while we’re at 75% in the first two years of raising funds, we at 31% in years after that. Although we are still weak in early and mid-stage, this is clearly showing a lack in later stage, not middle stage.

    While you recommend that the government shouldn’t screw things up with untested, unproven homeopathic medicines being recommended by people who have never spent a single hour in the trenches with early stage entrepreneurs, shouldn’t they really be listening to facts instead of opinions. Shouldn’t all of us be doing research and making evidence based decisions instead of listening to so-called experts who haven’t done the research?

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