Canada’s tech sector will likely see a flurry of foreign investment in 2016, as the tumbling dollar turns homegrown startups into absolute bargains for American venture capitalists. The loonie’s plunge below 70¢ against the U.S. dollar in mid-January was bad news for energy companies but will boost the competitiveness of our high-tech firms.
American venture capital firms have shown mounting interest in Canada, according to Stephen Partridge, who sits on Startup Canada’s board of directors. “It’s been a trend starting as early as 2012, but over the past 12 months, you’re hearing it left, right and centre,” he says.
In an opinion piece for the Globe and Mail, David Teten, a partner with New Yorkbased FF Venture Capital, wrote, “The dropping Canadian dollar makes investing in Canada significantly more attractive.” He cited other reasons Americans are enthusiastic about Canada’s startup scene, including strong tax incentives and immigration policies that “allow talented people globally to come to Canada.” Last year, Teten’s firm invested in the Better Software Company, an enterprise resource platform based in Ottawa. Meanwhile, Kayne Partners from Los Angeles invested $15 million to You.i TV, an Ottawa-based software company.
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One advantage for Canadian tech firms is they can generate revenue in the United States while incurring expenses here at home. “It makes our dollar go further and makes these companies healthier than their American counterparts,” says Jim Orlando, managing director of OMERS Ventures. Indeed, companies that produce apps or wireless solutions, or do other quick-turnaround projects for other firms are now at a significant advantage when bidding on contracts. “They’ll be the first one to see a pretty big upswing in their business,” says Steven McCartney, vice-president of startup services at Waterloo-based Communitech.
Investors will likely be drawn to Canadian companies with proven track records and products, according to McCartney. Those firms could include Plasticity, which makes a tool to monitor workplace happiness; drone maker Aeryon Labs; and Clark Robotic Systems. (McCartney has no position in any of these companies.)
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Fluctuations in currency can happen in a matter of moments, but going through rounds of venture capital investment can take months. The low dollar might simply prove an added incentive to close a deal that’s already underway, says McCartney.
While established tech companies are better primed to take advantage of the opportunities, Partridge says more money will flow from seed funds to young startups. “Not everything is venture capital investing,” he says. Angel investors and family funds tend to be nimbler than VC firms and more eager to take advantage of the current economic climate. “Those are the ones looking to make faster investments.”
Even in the event of an acquisition, the startups will likely remain in Canada. Tech firms no longer need to move to Silicon Valley to become successful. “The marquee example of that is Shopify,” says Orlando, citing the popular e-commerce platform, which is based in Ottawa. Other Canadian firms with global reach include Vancouver-based tech companies like Hootsuite, Vision Critical and BuildDirect.
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Meanwhile, Canadian investors will likely take a close look at local opportunities as the value of the dollar dwindles. “There’s some money that might just be repatriated,” says McCartney. “There’s a weird, inverted opportunity for Canadian companies to take advantage of that.”
Sherry Cooper, chief economist for Dominion Lending Centres, believes Canadian investors have to do their part to inject money into a segment of the economy that she says could one day form the spine of the Canadian economy. “It helps—there’s no question,” she says. “But it takes quite a while for it to have a big impact because, obviously, startups are small. And what we need is another RIM or Nortel back in the day.”
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