A PwC Canada report found that Canadian start-up CEOs are increasingly focused on building independent companies, rather than opting for sales or mergers. PwC’s survey showed 44% of companies are looking to M&A exits, in contrast to the 76% that sought this route a year ago. Just 21% anticipate a partial sale, while 30% have no plans to exit at all. The report also found that more start-ups employ women, which accounted for 24% of management teams. Over half of start-ups rely on friends or family money, angel financing or venture capital investment.
Finding a buyer is no longer a key exit strategy for Canadian startup CEOs, according to PwC’s Emerging Canadian Technology Companies: A CEO Perspective.
Results from the 10th annual report, released today, show that only 44% of the surveyed companies are looking towards a merger or an acquisition to exit the market, a stark contrast to the 76% who were eyeing this route just a year ago. Just 21% anticipate a partial sale of the company, while 30% have no plans to exit at all, showing that the trend is moving towards building the business and bringing it to the next growth stage. And, the survey also suggests that CEOs are staying put for good reason– more than one-third (36%) of respondents reported having reached profitability, while another 28% expect to get there within one year, and another 26% within two years.
Startup CEOs are also staying close to home when it comes to seeking future revenue growth. With Canada’s economy continue to grow at a steady (albeit small) pace, nearly seven in ten respondents generate most of their revenue at home in Canada, well ahead of the US (23%) and overseas (9%).
“Emerging companies in Canada are in a good place, and the prospects for profit are high,” says Eugene Bomba, National Emerging Company Services Leader at PwC. “Larger businesses are more willing to work with, and give a chance to, startup ventures, and this friendly climate is helping CEOs to truly develop their businesses while growing their revenue on home soil.”
However, even with the future looking bright for emerging companies in Canada, startup CEOs are still uncertain about today’s market. Survey results show that startup leaders cite revenue generation (41%) and funding (19%) as their biggest concerns, ahead of attracting and retaining talent (11%), which topped the list for the first time last year at 26%.
“The outlook is positive for Canadian startups, but it is crucial that CEOs not rest on their laurels,” says Chris Dulny, PwC’s National Technology Sector Leader. “Tech services are in high demand, and smart operational and financial decision making are the tools to bringing a company’s vision to life and seeing it thrive.”
Other survey highlights include:
In what was previously a male-dominated sector, women are starting to break through, but there is still more balance to be achieved. Among the companies surveyed, women make up only 27% of the workforce and 24% of their management teams.
At 64%, private funding from family and friends continues to be the primary source of funding for the majority of respondents, compared to 16% who rely on angel investors and 9% who sought private venture funding. However, almost half (46%) declared that they did not need to raise funds at all.
Government funding continues to be key for Canadian startup CEOs, with 50% tapping into at least one government source. Among these, 35% said they took advantage of the “Scientific Research and Experimental Development” tax credit program (SR&ED), while 20% said they dipped into the Industry Research Assistance Program (IRAP).
When it comes to retaining talent, startups continue to be able to hold on to full-time staff, with 72% reporting losing less than 5% of employees to voluntary turnover. To keep talent, 36% of companies reported using stock compensation as a way to build closer ties between performance and results, and to increase employee engagement.
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