It is mid-year and I have a bit of recharging time before I start my new role at Wittington Investments, so I thought I’d review how my Canadian venture capital and startup predictions from the beginning of 2019 are shaping up.
Well, as I read through what I wrote six months ago, one area in the landscape that I clearly misjudged was the pace and magnitude of exits that we would see in 2019.
First a bit of a review: Actual liquid exits (versus private valuation increases) are important for a thriving and self-sustaining ecosystem.
Scott Kupor from Andreesen Horowitz describes the “venture cycle of life” in his Secrets of Sand Hill Road: VC firms “need to either sell or take the companies in their portfolio public…to realize cash to provide back to their own investors” (pension funds, governments, corporations, etc., that invest in VC firms). These limited partner investors in the venture funds can then “give the cash back to the VCs to play the game again in the form of a new fund.”
Over the past few years, I have been increasingly concerned with the lack of actual exits in the Canadian tech landscape, and seeking ways to hopefully improve that.
For the past several years, Canadian startups have taken in $3 billion to $4 billion of investment from all sources (Canadian, U.S. and global VCs, corporations, government entities, etc.). But the average of aggregate annual exits has been closer to $1.5 billion.
A good rule of thumb is that to be competitive, the VC industry as a whole has to eventually return about 2.5 x that of total investment within about eight years, or in our case around $8 billion each year.
This gap can be explained by several factors — more private capital has become available for growth-stage companies, companies have overall remained private much longer, successful exits take longer, and the Canadian startup industry is less mature.
All of the above is what led me to thinking about and attempting to predict new entrants in the exit leader-board for Canadian venture-backed startups.
In 2017, I predicted a tech IPO revival, and got it wrong as the IPO activity of the U.S in that year did not spill over into Canada. Then in 2018 I predicted three new entrants to the “top ten-in-ten” exits, and got that wrong as there were very few sizeable exits during the year.
So for 2019, I dialed my expectations down to one new entrant in the top 10 over 10 years and, well, the good news is that I am going to be wrong again this year.
Top Canadian technology startup exits over the past 10 years
Refining the criteria of Brian Kobus to focus on the most recent ten years, the table below contains the largest exits for Canadian technology companies. The key assumptions are as follows:
Pitchbook is the source of the transaction data, unless otherwise noted.
The company must have been founded in Canada and retained headquarters in Canada and/or a majority Canadian presence.
The company’s sectors are within the traditional information technology, media and/or the telecom industries. No life sciences, biotechnology or cleantech companies are included.
The transaction related to the exit must have been announced within the past 10 years (i.e., July 2009 or sooner).
The table lists transactions of US$50 million or more. Transactions without publicly available data are not listed.
For consistency, IPO transactions used the pricing at the time of the IPO, and not the subsequent trading price. Investors obviously exit over time, many after a lock-up period, so it would be difficult to determine the actual exit value (whether higher or lower).
Secondary transactions (where one investor buys the shares of another investor, thereby providing an exit to that original investor) are ignored since detailed information is often not available. These type of exits are increasingly common as growth equity deals often involve secondary transactions, and future versions of this summary should take them into account.
To view Table 1, please click here.
We have several new entrants this year already into the US$50 million or more exit leader-board over the past 10 years.
These are Lightspeed (IPO, US$1.1 billion), Intellex (US$570 million), Wave (US$405 million), Aeryon Labs (US$200 million) and FanXChange (US$64 million). This is significantly outpacing previous years.
As shown in a second table, the year to beat is 2015 — the total value of exits that year was US$2.5 billion, led by the Shopify IPO.
To view Table 2, please click here.
However, 2019 is well on its way to surpassing that, with US$2.2 billion in total value of exits thus far, halfway through the year. I look forward to seeing how the remainder of the year unfolds.
Jim Orlando has most recently served as a managing partner at OMERS Ventures, the venture capital arm of Canadian pension fund OMERS. This year, Canada’s Weston family recruited Orlando to run its new $100 million venture capital fund as part of the family’s holding company Wittington Investments.