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article imageSlower and lower funding leaves Canadian startups trailing U.S.

By Lisa Cumming     Jun 12, 2018 in Business
A University of Toronto study found that the Canadian innovation sector is lagging behind the U.S. because of the amount of money being invested into the space, and at what rate startup companies get that money.
The report, titled The Class of 2008, aimed to track the 10-year trajectory of a select group of companies worldwide. The report looked at 2,429 companies created in 2008 in Canada, the U.S., France, Germany and the U.K. Of those companies, 983 have since "obtained capital of over $100,000 to fuel their growth". The report studied these ones in-depth.
What was found suggests that Canadian startups are receiving funding, just not enough at a strong enough pace to keep Canada competitive with the U.S.
On average, Canadian companies in the study received 2.7 financing rounds, in comparison to 3.1 financing rounds in the U.S., and the average funding raised per round is substantially lower than in the U.S. With the lower average funding per round comes lower employment levels, too.
Canadian companies also have a longer average time to first funding.
“We fund them later, with less dollars, so they don’t grow as fast, so we’re not as attractive,” author of the report Charles Plant told Financial Post. “Canadians are learning that you need to apply lots of money in order to grow fast.”
Plant is a senior fellow at the Impact Centre at the University of Toronto, he researches and develops educational programming on innovation and entrepreneurship. On his blog, among other things, is a list of best practices for startups.
Canada tied with France in terms of IPOs, but even the good news isn't necessarily good news. Even though Canada has a greater percentage of IPOs, the average raised by the companies that went public was the lowest in the group, only raising about one quarter of what U.S. companies raised.
"This may indicate either a lack of late-stage capital that forces companies to access public markets to fuel their growth," reads the report, "or the ready availability of capital on the TSX Venture Exchange where many of these companies were listed."
After going public, Canadian companies in this class of 2008 also have lower revenue levels and market values than their American counterparts.
An area "of particular concern" is Canadian healthcare companies, who, on average, get their first funding after 6.5 years. This in comparison to 3.9 years, the average length of time it takes for U.S. healthcare companies to get their first funding.
"What does this mean for the Canadian tech space?" asks the report. "If we want to create more world-class companies, we will need to ensure that our tech companies get funding sooner and in larger amounts to be able to drive growth."
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