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Why venture capital plays a critical role in Canada's competitiveness

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Our mission at BDC Capital is to create a more prosperous Canada by supporting the creation and development of high-growth, innovative businesses.

As Canada’s largest venture capital investor, we know VC plays a vital role in transforming leading edge research into businesses that make our country more productive, innovative and competitive.

VC plays a vital role in transforming leading edge research into businesses that make our country more productive, innovative and competitive.

Canada is fortunate to have a remarkable technology ecosystem composed of some of the best universities, research facilities and business incubators in the world along with a pool of talented researchers and entrepreneurs.

In partnership with this ecosystem, it’s VC’s job to finance exceptional businesses that offer new products, services, business models, processes and management approaches.

VC-backed firms outperform their non-VC peers

We can see how important this role is when we look at the outperformance of VC-backed businesses versus their non-VC-backed peers. For example, companies supported by VC represent a disproportionate share of stock market capitalization and R&D spending in the U.S. (Fig. 1).

Key outcomes of VC-backed public firms relative to their presence in the U.S. markets

VC-backed firms also produce more fundamental and better-quality innovation than other firms by most measures. For example, an analysis of patent quality shows that VC-supported businesses produced significantly better innovation than non-VC-backed firms (Fig. 2).

Relative probability of patents reaching innovation performance measure thresholds

VC-backed firms generate more jobs and higher revenue

Additionally, studies have found that VC-backed businesses generate significantly more jobs and revenue.

In the case of job creation, VC-supported businesses show a compound annual employment growth rate that is 2.4% higher than non-VC businesses (Fig. 3).

Impact of VC-backing on employment growth

For revenue, VC support is associated with as much as 3.4 times higher average annual revenue growth (Fig. 4).

Impact of VC-backing on revenue growth

VC in Canada has made significant progress

Canada’s VC ecosystem has made great strides over the last decade. The number and diversity of general partners has grown significantly and VC returns have improved, attracting more private capital to Canada.

In fact, Canada now has one of the leading ecosystems in the world in terms of VC investment intensity (Fig. 5).

VC investments intensity

At the same time, Canada has experienced a boom in start-up entrepreneurship that bodes well for the future. The country has recorded the highest rate of early stage entrepreneurship among OECD countries in every year since 2015. And Canada has overtaken the U.S. on the conversion of university of research into start-up creation.

It’s critical to keep up the momentum

Considering the growing importance of the technology sector in the economy, it is our task as a country is to keep up the momentum. This will be no small feat in the midst of a recession caused by the COVID-19 pandemic.

Our research shows that VC investors tended to pull back during past recessions, leading to large reductions in investments and funds focusing on worse quality and less fundamental innovation.

However, the tech sector has proven resilient so far in the pandemic and the march of innovation goes on throughout the world, notably in key deep tech applications.

We have seen how critical VC is to Canada’s international competitiveness and sustaining our standard of living. This is not the time to ease up on the gas pedal. Instead, we need to renew our commitment to building an ever-more robust VC ecosystem that can support a new generation of tech champions for the benefit of all Canadians.

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