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This is part III of the series where I will examine the problem that has with its lack of for startups. If you happen to have missed part I of Canada, and more specifically Toronto, belongs at the top (for me) over the last 20 years; you can still view it here, or part II – Canadian brain drain and Toronto tech is too cheap can be viewed here.

I will continue to write one post per week of meaningful length.  I don’t do much in terms of social media (other than some light twitter) as I find it’s detrimental to my personal goals, so this is where you’ll be able to find most of my ramblings going forward.  You may also want to check out my business where I am attempting to throw the real estate community (in Ontario) on its head by applying techniques to the mass amounts of data that I’ve amassed in aggregate from being a broker.

Expect the following topics over the coming weeks as reasons for why the time is only now for Canada:

The lack of Venture Capital money in Canada

If you’re new to tech in Canada (i.e. you might be a millennial or possibly you’ve had a career change in the last few years) you might be wondering how true this is.  I would like to start with telling everyone that we were never in such dire straights as to think we had no money whatsoever, however the availability of it was not (and generally is not) something that tech founders rely on; we all tend to go elsewhere for funding beyond a Series-A.

It’s a bit sad actually, considering what we’re indeed doing is padding the pockets of Americans. Here is a quick overview of recent funding (of Series B) of tech in Canada:

Here is the issue as I see with these investments leaving Canada; it’s making other people, all over the world, very rich. There is very obviously a disproportionate amount of money coming from the North-East of the US and also from California, however Canada is allowing Australian equity companies to take the lead in investments too!

Colour me disappointed!

Canadian ecosystem of investors

The outlook is not always purely doom and gloom though. Canadian startups are very able to get pre-seed funding in Canada, that is funding before you go institutional, often from friends, family (and fools) and/or local networks. There is money out there to get your idea started in Canada – that is a definite plus!

The problem lies in the availability of seed round funding for Canadian tech firms (or more aptly; the appetite to invest). I have also heard many of the reason as to why, so let’s see if I can paint a picture for you in the coming paragraphs.


The pre-seed or post-ideation funding round is for early stage product development – essentially, for preparing the company to maximize its future fundraising opportunities via the assembly and testing of a coordinated, effective core team and the building of an MVP that goes beyond a prototype.

Companies in the seed funding round, in contrast, are expected to have already validated their value proposition, and it is during the seed stage that the company develops the levers with which they will define how their business will ultimately scale via an infusion of venture capital.


prototype is that first sketch of your idea. You have something clever and a few friends like the idea of it, so now you need to have something to show to a potential that gets the point across quickly. This stage of fundraising typically targets $50k-100k from friends and family (or more specifically investors who trust you just as much as they trust your idea).


An MVP is the very first small version of your product for wider circulation. You’ve raised the friends and family round and are intending to build something that actually works and in itself provides at least one piece of functionality that makes your product special. This is the code that will be the backbone of your codebase for the foreseeable future. Your goal is to start building a user base while raising $250k-1M in an angel investor seed round.

Stages broken up

While researching I found this table which tells a good story of the mechanisms behind funding of tech startups. This table is not a golden grail, but gives a good rule of thumb on the notion of when and how you might be funded.

Pre-Seed Seed Series A
Revenue $0 >$5K per month >$100K per month
Product No MVP MVP / Beta

Early release

All systems go!
Customer/Revenue Growth Customer Validation

or Pilot complete

Beginning 10% per month

for 6+ months

Cofounding Team 1-4 Cofounders 2-4 Cofounders full time 2-4 Cofounders full time
Exec Team Founders Founders + 1-5 Founders + 5-20
Board of Advisors  1-2 industry credible advisors 3-6 Serial  and/or industry experts 6+ Serial Entrepreneurs, investors and/or industry experts
Board of Directors None 1-2 cofounders  2 founders and 1 Serial Entrepreneur, Investor or Industry Captain
Runway (how long until you run out of cash)  No funding yet but you should have personal cash flow 6-18 months  6-18 months
Scalability  Future tech build Technology enabled Technology Core
IP (Intellectual Property)  Not Owned Owned Protected
Raise Target Amount $50k – $250k $500k – $2m $2m to $10m
Indicative Canadia Valuation $500k – $2m $2m – $5m $5m – $20m

Let’s move on now to examine exactly the types of rounds you may get and how Canadians tend to get their funding at these critical junctions.

The 3 Fs

Generally, most investors (myself included) will really only look at you if you have some skin in the game.  That means that you are likely to have bootstrapped your idea for some time, even before trying to get a cash influx.

The first such influx that most entrepreneurs look for is the pre-seed round commonly referred to as the 3 Fs; that is the Friends, Family and Fools round. Relying on friends who are willing to invest in you and family that feel obligated to invest in you is a great way to get started. This is why entrepreneurs spend a lot of time cultivating their social network – you never know who might be a potential funder for your idea. The term fools is embedded in here because they are all basically investing in you based on personal relationships rather than track record, availability of your product (or even a prototype for many) and the likely drawings on a napkin!

Image result for early idea on napkin

Angel networks

You may or may not have asked (and exhausted) your entire network at this point of money and the next logical step for tech entrepreneurs is to start looking for Angel Investors. These come in many shapes and sizes and most often found as part of a network of angels.

There’s a fairly healthy angel market says Brad Johns, partner with Vancouver-based Yaletown Venture Partners

Canada does fairly well in this aspect as we do have a plethora of people willing to chip in, either themselves, as part of a network or syndicate, a small cash infusion into a startup.  Further, with the advent of angel platforms such as AngelList also existing, the early funding needs of a Canadian entrepreneur are actually in good health.


At this point, Canada is still not positioned too poorly. A good proportion of early seed investments do indeed still come from Angel investors (as I have done in the past) that are looking to double up on a really good (and promising) opportunity.

Here you have typically displayed that you can get through prototyping, likely created an app that solves some problem relatively well, have hired some smart individuals, are on the road to a decent management team and now need some cash to back all of that up and figure out if you can truly scale (and build out the rest of your product).  Why wouldn’t someone want to double down on that considering they bet on you much earlier on in the first place?  Just makes sense, doesn’t it?

Well, luckily, most good angels do want the ability to help fund (at least) the first seed round.

Going back to the well

Why would early stage investors want this?  The typical investor won’t see their money for quite some time and just like in poker, once you are pot committed, you generally go in for more, whether or not that is smart.  In tech startup investing, it’s often wise to double down, especially when there is growth, revenue, users, NPS, etc… that looks favourable and could lead to some for of exit.  By doubling down, all the investors assure themselves a slightly larger piece of the pie and ensure that the founders have a reference (not always a lead) investor with which to help convince other (often institutional) investors.

Let’s look at a hypothetical example:

Years from start 0 2 4 8 10 15
Valuation $0.5 $2.5 $40 $100 $250 $1,000
Investors The 3 Fs Angels VC
Series A
Series B
Series C
/ Exit
Friends & Family $0.1  $0.1
Angels (seed) $0.4 $1 $1 $1  $3.4
Venture Capital (Series A) $4 $2 $2  $8
Venture Capital (Series B) $7 $4  $11
Venture Capital (Series C) $13  $13
Totals $0.1 $0.4 $5 $10 $20 $1,000
Years Invested 15 13 11 7 5
ROI 2000x 400x 25x 10x 4x

All dollars are multiples of one million


As the above alluded to the game of chasing money doesn’t quite end at Angel rounds.  You are very likely to require scale-up capital (possibly several times) in order to grow and scale the company to the point of merger, acquisition or IPO.  This is typically where the Venture Capital funds and firms come into play.  They all have slightly different requirements and manners in which they fund deals, however they all care deeply about making money, so they generally have a good idea of how to measure your company.

Some qualifiers for funding

A big misconception is that angel investors and venture capital firms only need to see a great idea to make an decision. To make wise investment decisions they usually want to see the 4 Numbers You Need to Raise Money:

  • Revenue (or Monthly Recurring Revenue if you have that)
  • Churn
  • CAC (cost of customer acquisition)
  • LTV (lifetime value)

Of course, this tiny list is not exhaustive, nor should it be taken as a golden grail, it is just a quick rule of thumb that founders should know about prior to asking for money (we will all want to know about these numbers).

Finally, here is a wonderful infographic on startup funding, the journey and possible valuations from Anna Vital.

Where do investors (and venture capitalists) come from?

With all that said, why is it that Canada has such a lack of VC funding as compared to the US, especially the Valley? A lot of the funders are former tech companies’ employees who have had very strong exits and have now gone on to create funds including some of the wealthy friends.  That is a big problem for Canada, as we have not had too many large exits.

All of these funds have to be raised (i.e. someone has to amass all the necessary people to subscribe to a fund).  Once raised, they can then be cut up into many investments, much like a Mutual Fund would for the Stock Market, this happens to be private equity though (in the hopes of one day being publicly traded; maybe).

Currently, the largest such Canadian funds belong to Georgian Partners and OMERS, with iNova, BDC and Relay Ventures trailing just slightly behind.  To put it into perspective, the five of them combined (approximately CAD$1.2B) do not amount to a half-year of investment in the Valley (averaging around US$0.6B) – even though it is currently in a slight decline.

According to the Canadian Advanced Technology Alliance (CATA), 2011 saw no increase to the $1-billion 2010 figure in new money coming into venture capital funds for investment while, in the U.S., funds for venture capitalists rose 32% during the same period.

This next quote is sort of the nail in the coffin for Canadian’isms…  Rather than trying to lead in anything, we seem to generally be content with just being mentioned.

Our goal is to have a not-bottom-of-the-pack VC community, we’re never going to be better on some of these scores than some of these countries who are way ahead of us. So, it’s incremental gains rather than quantum gains.

The lack of Canadian Exits

Why is it then that we do not have the critical mass of Venture Capital in Canada? Some of it has to do with having a super rich (in natural resources) country, where much our capital goes to the Oil & Gas (and other natural resources) industries.  This has been a favourite of the Canadian rich for decades and will continue to be, especially as the demand (globally) for more petroleum based products increases.

The other problem, as mentioned above, has to do with the fact that Canada just has not had wonderful tech success stories to anchor to, from which many tech leaning investors come from.  Look at Dragon’s Den for instance – the background of all of those “Dragons” is deeply ingrained in everything but tech (except for O’Leary, Herjavec and Croxon), instead this is the walk of life that they come from:

  • Franchise owner
  • Restauranteur
  • Marketing & communications
  • Merchant banker
  • Fashion designer
  • Microbrewery owner
  • Coffee shop / tea shop owner
  • Lingerie store founder
  • Investment banker
  • Self-published author


In my lifetime, I have seen a few good companies grow, scale, reach critical mass and then flail.  It seems that the notion of too big to fail does not lend itself well to Canadian tech firms.

Nortel, Corel, RIM

In its heyday, Nortel employed more than 90,000 people and even a blip in its share price — which once reached a consolidation-adjusted high of more than C$1,100 during the tech boom — could sway entire stock markets in Toronto and New York.

Corel, which created (or acquired) products such as CorelDRAW Graphics Suite, Corel WordPerfect Office, Corel Paint Shop Pro, and Corel Painter, and later WinZip and Mindjet MindManager, itself went from a Goliath like position in 2006 when it IPOed to a fledgling and (yearly) re-structuring business in 2010 until it was de-listed from from the market.

Most of us know the fate of RIM as it is a much more recent occurrence of Canadian tech giants stumbling. Its success (the keyboard, smartphones, Blackberry Enterprise Server) were all part and parcel to why it ended up failing.  Much like Kodak having first mover advantage and then relying on its line(s) of business and what it knew, rather than innovation, RIM got overtaken significantly by iPhone (Apple) and Android (Alphabet – Google).  It wouldn’t be long until it would just fizzle away as well, leaving only a handful of wealthy execs and none of the critical mass required for course altering changes in the VC climate of Canada.

Lack of visionary technology leaders

One of the bigger problems and why this keeps happening in Canada (as pointed out above) is that Canadian money does not go to tech and generally go to STEM activities, but instead get disproportionately pushed toward natural resources, arts, social, etc…  This is not a bad thing by any means, but it is one of the reasons why we are getting our butts kicked by other countries in this field.

As a result of our fostering of many things (and thus not keying in on what will actually drive the world further – Science and Math) we do a disservice to our tech entrepreneurs.

Another big issue we face is that the amount of investment has only recently started to grow.  Looking back 2 years, you see that Canadian investment (as a whole) decreased (and we were well behind all our G7 partners in this).

Image result for canadian capital by sector

This leads to our great people leaving and going to greener pastures, to the Valley (and other places in the US) where this is a critical mass of all the things I mentioned above.

A good example is the story of Bench who actually moved to the US to get their initial funding (when they found that they did not have enough avenues for funding in Vancouver).  They subsequently moved back, but could only truly get started (and get to a point of scaling up) in the US.

In Canada, there’s ultimately a lack of venture capital compared to the U.S, the amount you can raise and your valuation tends to be much lower.

It’s a nasty cycle

This is the chicken and the egg conundrum, just re-used / recycled for tech startup funding. We (the tech community) all want our brethren (and sistren) to do well (in Canada) which will foster more investment into the field.  This will lead to more Canadians seeing tech as a viable option to put their investment dollars and hopefully tip the scales in that direction.

Here’s hoping that Shopify, Freshbooks, 500px, ElementAI,, Hubba, Flipp, Wattpad, et al continue down the path they’re on and that the government makes it a little easier for all of us to do business.  That would truly be awesome!

In my next post, I will examine the obsession that our best (local) schools – University of Toronto and University of Waterloo – have with the FANGS and the Valley. In the following weeks I will dive into how Canada began to turn things around with better accelerators and incubators and then how it went on to start being seen as a powerhouse of AI talent .  See you here next week, right around the same time. 

Lack of venture capital money, lack of visionary technology leaders and lack of Canadian exits

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