Despite an epic 5-year bull run for America’s venture capital and small-cap market, Canada’s has been butchered in recent years. Starting 4 years ago, almost to the day, Canada’s small-cap market began a historical and frustrating decline. For some context on just how bad it has been for startup companies and early stage investors, the TSX Venture, Canada’s premiere venture capital public exchange, has lost nearly 70% of its value since the spring of 2011.
At the heart of the problem is a lack of diversification in Canada’s small-cap market. Nearly 75% of startup or early stage publicly traded companies in Canada are in the resource sector (they are exploration companies working to define oil & gas or mineral deposits).
With most commodities now trading roughly 50% cheaper than they were in 2011, it comes as little surprise that Canada has lost its footing near the top of the small-cap world. But in light of this epic collapse, a push for diversification within Canada’s venture market has begun.
Canada’s Venture Capital Diversification Challenge
Despite Canada having some of the most innovative startup tech companies (and biotech) in the world, early stage Canadian companies are often acquired by US firms looking to aggressively expand their portfolio of offerings. The acquisitions often occur before these Canadian tech startups ever consider listing publicly, so our investors seldom experience the upside. And with a lack of interest in recent years from Canada’s resource-focused retail investor, tech startups within the country have had little motivation to go public (the lack of interest in tech from Canadian investors often results in these companies receiving much lower valuations than comparable American counterparts). But with the right infrastructure in place, which includes pipelines to public money and awareness for our innovative startups, Canada has a chance to diversify its venture market and rise back to prominence. In every crisis there lies tremendous opportunity…
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