The Narwhal List – July 2019 Update

There has been a lot of action in the Canadian tech scene over the last six months. Deals are happening with increased regularity and for bigger amounts. We thought it would be worthwhile to update the Narwhal List for July 2019 to show what has happened over the last six months. July itself has been a busy month and this update doesn’t include anything happening in July.

First of all, four companies graduated from the list. Milestone and Lightspeed went public and H&R Block acquired Wave Financial for the princely sum of $398 M US. Wealthsimple, a company we hoped would become the next Unicorn exited the list as Power Financial ponied up for another round and became a majority shareholder. Here’s to hoping that Wealthsimple goes out and raises another round from an external party and becomes independent again.

Eleven companies including Vena Solutions and Lungpacer are either new or returning to the list. These 11 companies raised an average of $36 million US each.

Companies new or returning to the ListAmount raised $M US
AlayaCare25
ApplyBoard41
Dialogue30
Fiix Software40
Koho Financial31
Lungpacer Medical55
Mindbridge AI11
Sonrai Security19
TrackTik34
Vena Solutions87
Xanadu31

And finally, 8 companies already on the list raised an average of $38 million US of capital and moved up. At the top end of these companies was Fusion Pharmaceuticals which raised an eye-popping $105 M US.

Companies that raised moneyAmount raised $M US
D-Wave Systems30
ecobee61
eSentire47
Fusion Pharmaceuticals105
MOJIO10
Northern Biologics7
Turnstone Biologics42

You can see a completely updated list of the Narwhal List for July 2019 at https://narwhalproject.org/narwhal-list/

Sonder is a great “Started in Canada” story!

Today’s article in the Globe and Mail about Sonder, the San Francisco based travel company tells a great story. Founded in Canada in 2012, they moved quickly to the US where 90% of their 560 or so employees now reside. (Employee data from LinkedIn.) They are heading to $400 million in sales this year and just raised a $210 million US D round of capital (CBInsights). So far they’ve raised $340 m US and are officially a Unicorn. In Narwhal List terms, Sonder has a Financial velocity of 48. This is 39% higher than Canada’s leading tech Narwhal, Element AI which has a Financial Velocity of 35.

If you paid attention to our latest research summary, you’ll see why we think they are doing it right. First of all, they are in a horizontal consumer market. This is where all sorts of strong growth is possible. Secondly they are amassing copious amounts of capital. With last year’s revenue of about $200 million they now have 1.7 times as much capital as revenue. They have employee growth of 94% in the last year and 244% in the last two. This is exactly the growth they need to propel them towards an IPO.

Why this is great for Canada

You may be asking why I think this is a great Canadian story. After all, they are now based in San Francisco. It is sad that Sonder had to move south to be successful. But it’s great because it shows that we can create good ideas here and have the entrepreneurs to propel them to glory. It’s great because Sonder is now about to bring a second headquarters back into Canada and that’s a place where we can incubate new talent. Most of all, we’ll be building employees with the experience of working in fast growing companies and that can only be good for our ecosystem.

If we get enough of these stories, the Shopifys and Sonders, we will eventually have enough anchor companies around which a more successful ecosystem can flourish.

The Narwhal Project

Three years ago, I started doing research at the Impact Centre at the University of Toronto to discover the root causes of Canada’s challenges in creating a world-leading innovation economy. I thought it would be useful at this juncture to summarize our findings. This report highlights some of the issues we have identified. This blog also announces the move of our content to this new site and the launch of what we are calling the Narwhal Project, an exploration through research of what it takes to scale a tech company. I promise to blog more frequently again but meanwhile, you can check out a summary of our findings in our latest report.

For fifty years, the federal and provincial governments have been spending billions to improve our innovation economy, but without performance improvements. The usual discussion is centered on Canadian businesses and their lacklustre performance on research and development (R&D) and intellectual property (IP) protection. In addition, our productivity has lagged relative to the US because of insufficient investments into productivity-enhancing technologies, along with the lack of available capital and talented people to grow technology firms. 

But we believe that a critical challenge is our inability to scale companies to a world-class size. Larger companies boast several advantages. They have greater revenue per employee, pay better salaries, undertake more R&D, and take out more patents.

We lack large companies, particularly in the technology sector. We have only one Unicorn (with perhaps another one qualifying but not listed as such at the date of this publication) compared with over 150 in the US. Few tech companies in Canada grow large enough to go public. This means less R&D, fewer patents, and, ultimately, lower income per capita and productivity. 

Perhaps the solution to our innovation challenge is not more R&D and more patents, but rather scaling and building of companies. But why are we challenged do this in the tech field? What we have found is that:

  • Few Canadian companies are founded in large consumer markets capable of generating the desired scale.
  • We invest less per company relative to the US.
  • Canadian firms spend less on marketing and sales (M&S), activities that are critical to building the customer base.
  • We have fewer qualified people in marketing functions.

The underinvestment and underspending result in lower growth rates for Canadian tech firms compared to their US counterparts. Fundamentally then, Canadian firms do not look as attractive as potential investments due to slower growth. Because of this, they do not attract large amounts of late-stage capital and are often sold before they can scale to world-class size.

All of these factors converge to create serious barriers to growth of Canadian companies, thus necessitating smarter and more strategic thinking about how we will overcome these challenges.

You can get a full copy of the report here.