Identify a problem. Launch a startup to solve the problem. Move onto the next problem and the next startup.
That’s the business mindset of the vast majority of Canadian tech entrepreneurs, who have no intentions of developing their startups into an anchor company, according to a July 9 report from PwC.
In its annual emerging technology companies' survey, PwC revealed only 23% of Canadian tech founders aren’t planning to exit their companies.
The report said most entrepreneurs launch their startups to solve a business problem or fill a specific gap in the market. Once that’s complete, the founders generally prefer to move on to the next challenge instead of sticking it out with the company.
“Contrast the predominant Canadian attitude with the one commonly seen in Silicon Valley,” the report said.
“There, entrepreneurs often envision themselves building a billion-dollar company.”
Nearly two-thirds (63%) of Canadian CEOs surveyed said they planned to exit the company through an acquisition. Just 6% envisioned an exit via an initial public offering (IPO).
“Canadian firms aren’t absolutely opposed to the idea of going public, though,” the report said.
“Improved valuations and more funding to prepare for going public might inspire a few more firms to consider the option — as would seeing other prominent Canadian tech firms file IPOs.”
While Ottawa-based Shopify (TSX:SH) (NASDAWQ:SHOP) had success when it raised $131 million during its May IPO, other Canadian tech companies have struggled.
Vancouver’s Mogo (TSX:T) raised $50 million through an IPO in late June, but it’s opening price of $10 per share has since fallen to $7.50 a share by the close of markets Thursday (July 9).
Mogo originally intended to raise $50 million by selling between 3.9 million and 4.6 million shares at prices between $11 and $13. When investor interest appeared tepid, it revised that plan and sold 5 million shares at $10 each.
Koho CEO Daniel Eberhard, whose Vancouver-based startup specializes in online banking, said concerns remain over going public in Canada due to how recently the tech sector has become hot.
“Canadian investors and the Canadian stock market just doesn’t have the same aptitude for technology that the U.S. investors do,” he said.
B.C. Technology Industry Association (BCTIA) CEO Bill Tam told Business in Vancouver in April one of his organization's goals is to develop the next set of local anchor companies.
In January, startups began setting up shop at the BCTIA’s Innovation Hub, the first physical location for its remote accelerator program.
And on July 7, the BCTIA’s HyperGrowth program launched the province’s first-ever “second-stage” accelerator.
“It’s not really about finding a product or an audience,” HyperGrowth program director Clayton Weir said.
“We’re trying to create capacity in these companies that they can make $10 million a year in sales and up, and become the sort of next generation of middle-class and anchor companies in Vancouver.”
Meanwhile, the PwC report found Canadian startups have been boosting revenue from the U.S. market since 2014, when 25% of average revenue originated from south of the border.
U.S. market revenue is estimated to have risen to 32% this year, while Canada accounts for 59% and the rest of the world accounts of 9% of average revenue sources.
“This reflects companies’ increasing size — a number of firms now boast more than $15 million in annual revenue — but it may also show that years of encouraging Canadian entrepreneurs to take more risks and look beyond Canada is beginning to have the desired effect.”
@reporton
