Borderless Investments: Canadian vs. US Startups

This article is the first in a series that highlights how to properly go about funding and growing your startup.

To start, it’s helpful to understand how we pulled together the research behind these recommendations.

We wanted to uncover common elements in the fundraising strategies of “successful” Canadian high-tech startups that may have contributed to their success. For example, were all these companies part of an elite network? Were they formerly connected to influential industry leaders?

To arrive at this information, we spent months analyzing hundreds of thousands of data points across four different databases. We also spoke with key stakeholders, including VCs in both Canada and the US, select Canadian companies, and industry thought leaders. Through this research, critical insights were gained which have never been published before―insights we’re passing along to you to help increase your chances of being the next Canadian success story. And although the focus of this piece is largely on Canadian startups that have been involved in an M&A transaction, it is believed an analysis of the IPO market would lead to similar conclusions.

At the core, our findings pinpoint that Canadian company success is closely correlated with their breaking outside of their regional boundaries and getting closer to their end markets. In most cases, this happens to be the US.

Since the World Wide Web has no borders, it’s easy to think that an Internet-based business can target any world market regardless of where that company is located. Unfortunately, more often than not, this is a myth. As one Toronto VC told us, “As Canadians, we feel we are close enough to the US that we can still operate out of Toronto and cater to the American market. I don’t believe this to hold true. A company’s odds of success are better the closer they can get to their market.”

Stephen Hurwitz, a partner at Choate law firm, has written and spoken extensively about the Canadian venture capital industry. In many cases, he advises entrepreneurs to be physically in the top markets to which they sell.

Another way startups can get close to their end markets is through their investors. One of the biggest complaints Canadian entrepreneurs have, when launching and growing their startup, concerns the “lack of venture capital dollars available in Canada.” Right away, this is the wrong attitude to have.

We live in a borderless world, so from the get-go, look outside your immediate area for funding. Don’t just look for any fund or John Doe to cut you a cheque. Be strategic, and think about which angel investor or venture capital firm has the best industry knowledge and expertise to help build your company the fastest. Consider which investor can help you best execute on your company’s go-to-market strategy, and which investor has the strongest connections with channel partners, end customers and even potential acquirers.

If a VC that knows your company’s sector well rejects you, ask them for a debrief to understand why. This could yield key insights, so don’t dismiss it. They may have seen a dozen or so other companies doing exactly what you’re trying to do, or they may recognize the lack of unique value your company provides.

Finally, while it may seem easy to rely on local Canadian VCs to connect you with the right investors in the Valley, keep in mind that often they won’t stretch themselves to leverage their relationships for you. Ultimately, it’s up to you―the entrepreneur―to bring the right investors on board early on.

The following sections shine light on who these “right” investors may be and why they can make the difference between a startup that stalls and one that succeeds.


To set the stage, it’s helpful to understand the state of the technology industry in Canada today. The following infographic presents data on Canadian high-tech companies acquired over the past five years. This data was culled from a combination of both public and private sources, to understand company valuations, average time to acquisition, and acquirer locations.



What is striking about this data? Consider this:

• 183 high-tech Canadian companies were acquired over the past five years, versus 2,300 US companies. Compared to Canada, the volume of acquisitions in the US roughly aligns with the 10:1 ratio that is often applied to assess trends between the two countries.

• Of these 183 Canadian companies, nearly 70% were acquired by US corporates. For existing Canadian startups, this begs the question: if your ultimate acquirer is likely to be from the US, then how are you going to bridge that gap to liquidity?

• The average number of years to acquisition was approximately eight.

• The average exit valuation for Canadian companies was approximately US$100 million, compared with a US company valuation of US$384 million. Median values were $32 million and $82 million respectively.

This last point is often an area of contention, as industry experts grapple with why Canadian companies are valued less than their US counterparts. Industry experts point to the fact that Canadian companies sell out too early, before they have a chance to grow into larger, global businesses.

he cause of this could be a lack of late-stage financing available in Canada to help fuel companies’ growth. Which is why most of the companies that have only Canadian investment are sold at a relatively young stage, hence the smaller valuations.

Another reason could be a Canadian mentality to not think “big” in the early days. As one Toronto-based VC told us, “Young Canadian entrepreneurs constantly worry about dilution, instead of making growth their focus. My advice to them would be to take in as much money as they can early on, and focus on growing the pie instead of worrying about giving up the pie!”

From a regional perspective, the following stands out:

• 76% of acquisitions in British Columbia were made by US corporates, versus 65% and 56% in Ontario and Quebec, respectively. It appears that the farther a company is from the west coast (or Silicon Valley), the lower its odds of being acquired by a US corporate. Could something as simple as the cost of travel be deterring Valley-based companies from frequenting Toronto and Montreal?

• While Quebec-based companies had the highest rate of acquisition by Canadian corporates, they also had the lowest exit valuations.This indicates Canadian corporate purchase prices are much lower than those of US corporates. 

• All six of Google’s Canadian acquisitions were made in Ontario. This is where two out of three of Google’s Canadian offices are located.

• All three of Twitter’s Canadian acquisitions were made in British Columbia. With companies like HootSuite blossoming, we can’t help but wonder if Canada’s west coast is becoming a hub for social media talent and innovation.

As seen through this data, the US plays a big role in driving Canadian company exits.

This content was originally published on MaRS.