Canadian Startups Seek Foreign Investors Due to Lack of Venture Capital in Canada: Report

A lack of local funding is forcing Canadian technology startups to seek foreign investors, a new study affirms.

The study, titled “Impacts of Foreign Equity Investment in Canadian Firms,” was prepared by Wavefront for the small business and tourism branch of Industry Canada. According to the report, a “scarcity of investment funding in Canada tops the list of reasons why successful Canadian companies seek out foreign investors, particularly in the US.”

However, that scarcity is not the only reason Canadian startups reach their hands into the pockets of US and other investors. Doing so can help them grow beyond the Canadian market and also allow them to connected with more experienced investors and companies for mentorship and strategic purposes.

The Canadian venture capital industry is relatively young, having only reached a critical mass of investor groups and entrepreneurial startups in the late 1990s. In contrast, the US VC industry has been growing since as early as the 1950s. As a result, the Canadian VC industry is experiencing its own set of growing pains, which has important implications for companies looking to raise money.

According to research from Toronto-based MaRS, Canadian investors face three major challenges today: follow-on funding, sector depth, and talent pool. Until they can overcome these obstacles, startups will continue to look beyond Canada for financing.