Canadian Venture Forum Wrapup - Part 1
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Am going to do this in two parts. This post will be a summary of Mary Macdonald's presentation from Thursday about trends in the Canadian VC market. It's not time sensitive, but it's a great overview of the nature of our market, and how we stack up to the US as well as globally. Mary is a VP at Thomson Financial, and you can view the whole presentation on their website.
So, here are the key highlights I found worth sharing....
- From 2003, the Canadian VC market has been fairly flat. On a quarterly basis, typically, $400 million CDN is invested, and 200 companies are getting funded.
- There's a myth about it being easier to get VC funding in the US than in Canada. Thomson's data shows otherwise. After doing a basic adjustment for the 10-fold size differential between the 2 markets, as well as for the currency factor, here's what their data shows. On an adjusted basis, so to speak (like to like), in aggregate, VCs fund twice the number of companies in Canada, but the total value of monies invested is only about 2/3 of what US VCs put in. So, Canadian companies may get less money, but they're more likely to get funded.
- On a per company basis, Canada is way behind for the levels of funding. American companies typically get 3.5 times more VC funding than Canadian companies. For Q1 2006, the average levels are $8.6 million for US companies, vs. $2.4 million for Canadians (all figues in $CDN). In 2005, those respective averages were $10.5 million vs. $3.0 million. Don't forget that the CDN dollar is much stronger now than a year ago!
- Remember I talked about CDN companies getting funded more readily compared to the US? That's on a relative basis. In absolute terms, Canada is actually right up there on a global basis. Believe it or not, 2004 data shows that Canada is #3 in the world in terms of number of companies getting VC funding. The US was far and away the leader in 2004 with 3,688 deals, followed by France at 921, and then Canada with 631. Even more interesting is how quickly things tail off down the line. The UK was just behind Canada with 587 deals, and then things drop off real fast to 217 from Sweden. Granted, this is 2004 data, but it certainly shows Canada holding its own very nicely on this metric.
- Deal size, of course, is another story. While we were #3 in 2004 for number of deals, Canada drops way down to 24th for average size of deals. This metric is more easily skewed,as in any given year a certain country could be very hot, or the nature of deals tends to be very big. Taking that into consideration, Japan is way, way out there with an average deal size of $146.3 million. Things fall off real fast to $63.3 million for S. Korea, and dropping again way down to $26.4 million for Hong Kong. After that, the numbers keep shrinking, with the US coming in at 7th spot at $9.7. Things rachet down from there, and we find Canada #24 at $2.9. All $ in CDN.
- The regional data within Canada is pretty interesting. While Toronto may be the economic engine of Canada, and Toronto tends to think of itself as the financial center of Canada, it's not the only game in town. In 2005, Ontario attracted the most VC funding at $751 million, but Quebec was not far behind at $710 million. The next closest province was BC at $226 million.
- On municipal basis, it gets even more interesting. In 2005, Montreal attracted more VC money than any other Canadian city. Montreal accounted for 24% of all VC money, followed by...not Toronto, but Ottawa, at 22%. Toronto is actually well behind both at 15%. A major reason for this is that the pharma and biotech sectors attract a lot of VC funding, and Montreal is very strong in these markets.
- Comparisons to the US are also very telling. There's a really neat chart ranking the amount of VC money by state/province in 2005. California is in its own world, attracting $12.4 billion. Massachusetts is the next closest, well back at $2.8 billion. Not bad, though, considering MA has 1/5 the population of CA. Going the other way, though, MA is well ahead of the next closest state, Texas, at $1.3 billion. After TX, we get NY, NJ, WA, and then Ontario in 7th place at $751 million. Colorado is 8th, followed by Quebec at #9 with $710 million (all figures in $CDN). So, on this basis, our biggest players, Ontario and Quebec, hold their own very nicely. For the non-Canadians out there, you have to remember that the population bases for Ontario and Quebec are on par with many of the larger US states like Illinois, Michigan, Pennsylvania, etc.
- Finally, there were some interesting stats on exits. In 2005, Canadian venture-backed companies were 5 times more likely to exit via M&A than IPO. In total, there were 46 M&As in 2005, compared to 9 IPOs. That said, there's more money in the IPO - nice work if you can get it The average value of these IPO was $67 million, vs. $47 million for M&A exits.
So, here are the key highlights I found worth sharing....
- From 2003, the Canadian VC market has been fairly flat. On a quarterly basis, typically, $400 million CDN is invested, and 200 companies are getting funded.
- There's a myth about it being easier to get VC funding in the US than in Canada. Thomson's data shows otherwise. After doing a basic adjustment for the 10-fold size differential between the 2 markets, as well as for the currency factor, here's what their data shows. On an adjusted basis, so to speak (like to like), in aggregate, VCs fund twice the number of companies in Canada, but the total value of monies invested is only about 2/3 of what US VCs put in. So, Canadian companies may get less money, but they're more likely to get funded.
- On a per company basis, Canada is way behind for the levels of funding. American companies typically get 3.5 times more VC funding than Canadian companies. For Q1 2006, the average levels are $8.6 million for US companies, vs. $2.4 million for Canadians (all figues in $CDN). In 2005, those respective averages were $10.5 million vs. $3.0 million. Don't forget that the CDN dollar is much stronger now than a year ago!
- Remember I talked about CDN companies getting funded more readily compared to the US? That's on a relative basis. In absolute terms, Canada is actually right up there on a global basis. Believe it or not, 2004 data shows that Canada is #3 in the world in terms of number of companies getting VC funding. The US was far and away the leader in 2004 with 3,688 deals, followed by France at 921, and then Canada with 631. Even more interesting is how quickly things tail off down the line. The UK was just behind Canada with 587 deals, and then things drop off real fast to 217 from Sweden. Granted, this is 2004 data, but it certainly shows Canada holding its own very nicely on this metric.
- Deal size, of course, is another story. While we were #3 in 2004 for number of deals, Canada drops way down to 24th for average size of deals. This metric is more easily skewed,as in any given year a certain country could be very hot, or the nature of deals tends to be very big. Taking that into consideration, Japan is way, way out there with an average deal size of $146.3 million. Things fall off real fast to $63.3 million for S. Korea, and dropping again way down to $26.4 million for Hong Kong. After that, the numbers keep shrinking, with the US coming in at 7th spot at $9.7. Things rachet down from there, and we find Canada #24 at $2.9. All $ in CDN.
- The regional data within Canada is pretty interesting. While Toronto may be the economic engine of Canada, and Toronto tends to think of itself as the financial center of Canada, it's not the only game in town. In 2005, Ontario attracted the most VC funding at $751 million, but Quebec was not far behind at $710 million. The next closest province was BC at $226 million.
- On municipal basis, it gets even more interesting. In 2005, Montreal attracted more VC money than any other Canadian city. Montreal accounted for 24% of all VC money, followed by...not Toronto, but Ottawa, at 22%. Toronto is actually well behind both at 15%. A major reason for this is that the pharma and biotech sectors attract a lot of VC funding, and Montreal is very strong in these markets.
- Comparisons to the US are also very telling. There's a really neat chart ranking the amount of VC money by state/province in 2005. California is in its own world, attracting $12.4 billion. Massachusetts is the next closest, well back at $2.8 billion. Not bad, though, considering MA has 1/5 the population of CA. Going the other way, though, MA is well ahead of the next closest state, Texas, at $1.3 billion. After TX, we get NY, NJ, WA, and then Ontario in 7th place at $751 million. Colorado is 8th, followed by Quebec at #9 with $710 million (all figures in $CDN). So, on this basis, our biggest players, Ontario and Quebec, hold their own very nicely. For the non-Canadians out there, you have to remember that the population bases for Ontario and Quebec are on par with many of the larger US states like Illinois, Michigan, Pennsylvania, etc.
- Finally, there were some interesting stats on exits. In 2005, Canadian venture-backed companies were 5 times more likely to exit via M&A than IPO. In total, there were 46 M&As in 2005, compared to 9 IPOs. That said, there's more money in the IPO - nice work if you can get it The average value of these IPO was $67 million, vs. $47 million for M&A exits.
