Canada’s fastest-scaling private companies linked to cities with tech clusters

Mark Lowey
February 6, 2019

Nearly half of Canada’s fastest-scaling private tech companies with potential to reach $1 billion in market value – known as “narwhals” – are located in Greater Toronto, according to the 2019 Narwhal List from the University of Toronto’s Impact Centre.

The greatest concentrations of narwhals appear in Canadian cities with tech clusters, highlighting the benefit of clusters with an anchor firm that in turn attracts companies that build the cluster, says Charles Plant, senior fellow at the Impact Centre and Narwhal List author. “Having a big anchor firm and the cluster of companies around it is very important to develop smaller companies.”

In addition to Greater Toronto, 12 narwhals are in Greater Montreal, six in Metro Vancouver and five in the Kitchener-Waterloo region. Only seven narwhals are located elsewhere in Canada – none in Alberta, Saskatchewan or Atlantic Canada. Southern Ontario as a whole benefits from having a large cluster of software, hardware and financial tech companies, which doesn’t exist to the same degree elsewhere in Canada, Plant says.

Toronto-based BlueRock Therapeutics, focused on reversing degenerative diseases, ranks No. 1 on the Narwhal List, followed by artificial intelligence firm Element AI in Montreal, Ironshore Pharmaceuticals in Toronto, DalCor Pharmaceuticals in Montreal, and social media management firm Hootsuite in Vancouver. Fifteen of this year’s top 50 narwhals are in the Internet software and services sector, 10 in health care, eight in mobile and telecommunications, four in electronics and computer hardware, and 13 in other tech sectors.

There are 28 Canadian narwhals on this year’s list with similar growth rates as U.S. “unicorns” (private companies with a market value of at least $1 billion) – up from 10 companies in 2016. Twenty-five tech companies on the list raised, on average, $40 million, while two health care companies each averaged $100 million in new capital.

“We’re still not growing our companies fast enough." - Charles Plant, senior fellow at the Impact Centre

The Impact Centre’s list uses a measure called “financial velocity” – the total amount of funding a company has raised divided by the number of years it has existed – as a proxy for the growth rate of private companies. The average financial velocity of 40 tech companies on this year’s list increased to 12.8 from 9.4 last year. However, financial velocity of 10 health care tech firms declined to 21.7 from 27.2.

“We’re doing a better job of growing faster and acquiring capital faster, and that’s what’s necessary if we want to become world-class companies,” Plant says. “Not doing so is the fundamental reason for our failure in the research and development area, and in productivity and income per capita.”

Top tech markets have fastest-scaling companies

Cities with the fastest-scaling private tech companies also overlap with Canada’s top-ranked tech markets, according to a separate research report, Scoring Canadian Tech Talent 2018, released last November by CBRE Group, Inc. It assessed key indicators of tech talent employment, educational attainment and the high-tech industry in each city.

Toronto ranked No. 1 as Canada’s top tech market, followed by Ottawa, Montreal, Vancouver and the Waterloo region. Canada added 178,800 tech jobs, an increase of 27.3%, between 2012 and 2017, with Toronto leading in venture capital investment and in absolute growth with 82,100 new jobs, according to the report. CBRE noted that Canadian cities lag in the development of tech clusters, and concerted effort on policy and infrastructure is required to support clustering.

The industry-led Digital Industries Economic Strategy Table, in its report last September, recommended refocusing a percentage of federal growth-oriented programs away from startups to support high-performing scale-ups. The report also set a target to create 13 new Canadian digital anchor companies earning $1 billion or more in annual revenue by 2025, which would support regional tech clusters.

Canada’s SMEs still face challenges scaling up

Despite progress, Canada has yet to produce another unicorn since Kitchener-based Kik Interactive, which has a freeware instant messaging mobile app, became one in August 2015. Since then, 19 U.S. companies were founded and became unicorns. The U.S. now has a total of 150 unicorns. Columbia, France and South Africa, with two each, rank ahead of Canada with only one, according to the Narwhal List.

“We’re still not growing our companies fast enough,” Plant says, noting that few Canadian companies have a growth rate of 60% per year, which is typically when companies go public. “Because of that, they don’t attract the capital, and then they don’t grow big enough to become unicorns and then go public.”

Business groups, including the Business Council of Canada and the Canadian Federation of Independent Business (CFIB), told RESEARCH MONEY that SMEs in Canada face several challenges in scaling up, including a shortage of skilled workers and regulatory red tape. “It’s fairly easy in Canada to start a small business, but it is a big challenge – especially on the regulatory front – to grow from small to medium-sized, let alone from medium-sized to large,” says Dan Kelly, president, CEO and chair of CFIB.

READ MORE: Business groups urge fewer R&D incentive programs and smarter policies to support innovation (January 23, 2019)

But Plant, an entrepreneur and venture capitalist who ran a software firm for 15 years, points to a central business problem that is holding back Canadian firms. “We’ve got more than enough tech talent and more than enough ability to acquire programmers and things like that.” The real problem is Canadian companies are not selling immediately into global, consumer-oriented markets or hiring marketing and sales talent in the countries they want to sell in, says Plant. “Think global about your market, about your people, about your capital. And then there’s nothing holding a Canadian company back.”


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