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Funding World Class Venture Companies

Written on March 10th, 2014

What does it take to build world class venture backed growth companies? $75 to $100 million on average by one measure. A recent study by CB insights highlights that the average amount raised by about 600 private tech companies in the pre-IPO stage (valuations over $100 million) to be over $100 million.

World Class venture companies in our view are those that have the near term potential to have a billion dollar valuation, over $100 million in sales, have rocket-ship growth, kickass margins and big competitive advantages. These are not companies that will RTO into some promoted shell on the TSXV, but do a $50+ million cross border NASDAQ/TSX offering or be bought by one of the 10 tech giants for some eye-popping valuation.

That puts the scale of things in perspective for us Canuck private growth investors, eh? We are unlikely to get many more world class names if we don’t start thinking and acting on this scale. If there are about 600 private venture backed growth companies with average funding of $75 – 100 million, how many of those reside in Canada?

We can think of very few. Maybe a half dozen? Hootsuite? Shopify, Desire2Learn are visible examples and we are aware of a few more (some we may have even invested in). So we probably don’t have our fair share of these names….yet.

The good news is that in the 20+ years I’ve been involved in the Canuck Tech Patch, I’ve never seen such a strong group of private funders emerge. Yes, there is still too few of us and too little capital, but the foundation is there for building new world class names. Funders like OMERS Ventures, Wellington Financial, Tandem Expansion Fund, RHO Ventures and of course Difference Capital (the only public play) along with a few of the solid U.S. VCs that will look north of the boarder like Mohr Davidow, JMI Equity, and Panorama Capital, are all building the venture ecosystem to fuel some great world class tech names north of the border.

Match this capital strength with the emerging tech startup hubs of Toronto, Waterloo, and Vancouver and we have some good reasons to be hopeful that Canada will once again have its share of world class names. But first we are going to need some $100 million funding rounds.

Tom Astle, CFA, P.Eng, Head of Investment Strategy, Difference Capital

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