Tech Sector Leaders on Funding Challenges Facing Canadian Startups
There are as many opinions as voices on how to fix them. Here are a few from key people in the startup ecosystem.

Startup founders need to think about funding options at all stages of growth. What kind of funding is available – or not – at which stages? We talked to investors, tech community leaders, and founders about the challenges attracting startup investment, cultural fit, and how some have negotiated funding issues.

While everyone we spoke to said there are challenges getting funding, there’s little consensus on where exactly those holes are – or how they should be filled.

Matt Roberts, Associate Director, IT Ventures, Business Development Canada

There are still gaps in the ecosystem. The gaps have narrowed significantly over the past five years but they’re still there. So it’s incredibly difficult for startups to find the first $500K or $1 million of investment.

There’s a reason for that. A lot of what we would call super angels are small seed funds. After they’ve done one seed fund they want to raise another seed fund. And they want it to be a little bit bigger, so they can get bigger fees and get a better paycheque. Because of that they can’t do the number of deals they were going to do before. They need bigger cheque sizes so they need to do bigger deals, and they move themselves out of the early seed market.

There’s a bunch of us in mid- to late-seed, and companies post-revenue, who do deals there. But there’s not a heck of a lot of companies that do early seed.

Traditionally there’s been a perception that there’s a gap in what we call late series B, maybe series C investments, the $100m+ valuation. I’d say that’s not as pronounced as it was two or three years ago.

David Hamilton, Founder of Lab T.O., a coworking space

I think we’re seeing entrepreneurs consider the benefits of bootstrapping based on their business model. Given the time and effort it takes to secure funding, a startup could lose its competitive advantage by seeking venture capital.

We’re also seeing companies use government grants, accelerators, tax credits, and other monetary and non-monetary resources to reduce their burn rate.


Dr. Sean Wise, Associate Professor of Entrepreneurship at Ryerson University’s Ted Rogers School of Management

It is always a better idea to bootstrap. However if you’re going to raise initial funding the best thing you can do is do it through crowdsourcing. By crowdfunding your venture not only do you save equity but you gain access to early adopters.

Michelle McBane, Director, Investment Accelerator Fund, Toronto

The right companies are getting funded. Will I say that they’re getting funded as highly as they should? No. They’re always undercapitalized versus our US counterparts.

A similar company in the US would raise one to two to three times more than a company at this stage would. They’d likely get a higher valuation, which mean they could get a bit more money in. The bigger issue is that we’ve chronically underfunded our companies.

Sonia Strimban, Manager Venture Operations, MaRS Discovery District

Funding is challenging in Canada. There’s a government funding crunch – it’s not as abundant as in the US.

It’s a lot easier to get seed funding. There’s definitely a series A crunch. There aren’t that many funds able to hand out that capital. Post series A there’s almost nothing in Canada unless you’re going private equity or public.

There’s a trend to alternative financing. Business Development Bank of Canada are creating some interesting structures. Business are forced to be creative because of the funding structures here.

Will Hutchins, Managing Director, Espresso Capital

Canada’s technology sector has long suffered from chronic underfunding with the vast majority of early-stage companies relying on modest sums from friends, family and angel investors, or bootstrapping growth. But not all companies are fully aware of their funding options.

Our firm seeks to provide alternative sources of capital – in the form of debt financing – to support early and growth stage companies to achieve their growth objectives. It’s important that companies assess all potential funding sources – equity and debt – in developing their funding strategies.


Chris Arsenault, Managing Partner, iNovia Capital

The funding cycles for tech companies across Canada have positively evolved over the last decade but still do not meet the startup to growth funding needs. To create a strong innovation ecosystem we need to be able to provide support, financial or otherwise, for startups and incentivize investment at all levels of their companies’ lifecycle. And we are not there yet–there is still a general lack of later-stage funding for Canadian tech companies.

We have upped the bar at the angel and early-stage funding levels, but when it comes to raising Series B round funding and upward to support growth for example, Canadian tech companies are still raising most of their capital from the USA. Canadian investors are missing out on generating returns by not backing the next generation of large high growth tech companies in their own backyard.

We will be that much more successful once we close this full-cycle funding gap.

Gregory Melchior, Founder of 4D Virtual Space

We’ve all invested our own money. We are now at series A financing but we have a reverse takeover structure to become a public company in Canada. We feel that the markets are the most efficient space to value your company–not by some mechanism that obfuscates financials.

We went to the small VC companies in Canada and it just wasn’t a fit. I’ve been in the global capital markets for 20 years, and if there isn’t a fit with the shareholders, it’s not going to work.

[Investors] in the very early stages are no more than a bunch of people that are retired and have invested $10-30,000. The last thing I want is to talk to is some retiree every single day because they invested in 4D Virtual Space.