Anecdotal evidence suggests that many Canadian technology companies wait until their products are completed before raising and spending funds on crucial functions, including marketing and sales (M&S) and that this practice is delaying success in raising funding.
The goal of this study was to determine whether Canadian technology startups do in fact delay funding M&S activities. To this end, we looked at job classifications of employees at over 900 private Canadian technology companies that had received external investments. What we found was that in the startup phase Canadian firms have significantly fewer employees than US firms do. Even among the best-funded firms, Canadians have 25% fewer M&S employees than US based Unicorns do.
In order to provide a tool to enable entrepreneurs and investors to gauge how attractive firms are from a financial standpoint, we are pleased to introduce a way to measure Financial Velocity. Financial Velocity is defined here as the amount of funding a firm has raised divided by the number of years it has been in existence. It is expressed in millions of dollars per year. This measure reports the rate at which companies raise and consume capital.
We have assembled a list of the top Canadian businesses based on Financial Velocity and are pleased to introduce the Narwhal List. This list shows Canadian venture capital backed companies with the highest Financial Velocity.
Policy experts and innovation practitioners have criticized Canada’s innovation system for its inability to grow and scale companies. This has been a baffling issue because Canada’s technology sector has been successful at starting companies and generating innovations with high potential. In this study we wanted to determine whether the way in which Canadian companies raise funds also adding to the scaling problem?
This study reveals three critical issues:
1. Canadian companies wait longer before they start raising funds.
2. They raise funds less often.
3. They raise less money over time.
And as a result of this pattern, even our best companies are not particularly attractive to investors as their growth rates fall well below that of the most successful US companies.
Our success as an “Innovation Nation” depends not only on our ability to come up with novel ideas or inventions but also on our ability to market and sell those ideas. Unfortunately there is a striking difference in the spending behaviour of Canadian and American on marketing and sales (M&S). While mid-sized US software companies spend, on average, 34% of their revenue on M&S, comparable Canadian firms only allocate 20% of their budgets to those expenditures.
The lack of venture capital in Canada has been denounced consistently in studies and think tank reports, and by the media, entrepreneurs, and even venture capitalists themselves. But while the general consensus is that Canada does not have enough venture capital, we somehow manage to rank #4 in the sale of technology companies.
How can we have too little venture capital funding but be so successful at selling companies? The answer lies in how we are funding companies and what stages we are able to fund.