Why investment in Canadian SaaS Startups shot up 200 percent in 2019 - Canada News Media
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Why investment in Canadian SaaS Startups shot up 200 percent in 2019

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It’s a great time to be a software-as-a-service (SaaS) startup. Advances in cloud computing and the need for enterprise-level software have contributed to incredible growth in recent years, with the worldwide SaaS industry expected to be worth over $100 billion by 2020.

Of course, every startup is different, and what may work for one SaaS company might be unsuitable for another. Yet, when it comes to Saas startups based in Canada, the long-term trends driving their growth remain consistent.

Here are the top takeaways to note as Canada (not just Ottawa!) becomes a more prominent hub of SaaS startups.

1. Startup investment is part of a long-term trend

The total investment in disclosed SaaS startup deals for 2019 was $5.13 billion, compared to 2018’s $1.62 billion. While this represents a massive increase in scale, investor interest in Canadian startups is by no means brand new.

Ontario earned its title as ‘Silicon Valley of the North’ as far back as the 1980s, when Newbridge Networks was poised to disrupt the telco industry from its Ottawa headquarters. The dot-com bubble brought Newbridge and hundreds of other companies to bankruptcy, yet the strong investment in infrastructure and tech education within Canada’s borders remained. Now, this potential for success has turned into a reality, particularly in the SaaS sector.

It’s certainly not just Ontario driving this trend for SaaS growth. Deals have been inked across Canada, from the Yukon, to Newfoundland, and Quebec. While Ontario remains the leader in overall totals with $1.78 billion, the fact that millions in investment have spread nation-wide is an appealing sign of sustained long-term growth.

2. Average deal growth is up substantially

Two hundred percent growth overall is substantial, yet there is another number entrepreneurs and business investors would be wont to miss. The average deal size for a SaaS startup was $10.6 million in 2018. In 2019, that number grew to $43 million.

What could account for this 300 percent growth rate? There’s no one single reason, yet taking Canada’s SaaS ecosystem as a whole, clear signs point to similar growth rates for the future.

For example, Shopify’s acquisition of 6River late last year drew attention not only to the companies involved, but to Ottawa itself. Here was a Canadian company with worldwide reach acquiring a cutting-edge AI company based in the United States. Likewise, Vancouver-based Hootsuite and Quebec-based Coveo each received multi-million dollar investments, pushing their valuations up to $750 million and $1.3 billion, respectively.

These kinds of numbers and growth among well-known companies have a knock-on effect among smaller startups. When Hootsuite draws $50 million in investment and hits 16 million customers almost simultaneously, investors take note, and react by putting their dollars in other up-and-coming SaaS startups. Canada’s notability as a hub of SaaS activity is beginning to take root, and investors worldwide are noticing.

3. Canada (and Europe) are catching up to the US

The fact that the investors outnumber SaaS companies – 298 to 183 – is no surprise, and is a strong indicator for future investment. More surprising is the split between Candian and US investors in 2019 of 136 to 139, a near neck-and-neck tie.

For years, Canada’s tech sector has been dominated by US investments. There was (and is) simply more money south of the border. Yet, the near-parity achieved in 2019 tells us a great deal about the future of Canadian SaaS startup investment – in brief, that it will be more Canadian.

The ecosystem of Canadian companies and applications is growing, allowing startups from Vancouver, to Ottawa, to Quebec to rely more on their own networking and word-of-mouth. What’s more, this robustness has drawn the eye of investors across the Atlantic as well. Australian, German, British, and French investors all made notable contributions to growth among Canadian startups.

There’s no reason to believe that the US, still number one when it comes to startup investment, is falling away from Canada. The rest of the world is simply starting to catch up, with Canada herself leading the way on a more global approach to startup funding.

4. Business and productivity software drives the most growth

What do HootSuite, Shopify, and Coveo all have in common? Within the SaaS sphere, each company works in the industry that’s seen the highest investment: business/productivity software.

That’s not to say investment hasn’t been substantial in other industries as well. Financial services, for instance, netted $1.73 billion, a massive sum by any means, but just over half of business/productivity’s $3.4 billion.

Once again, these numbers can be attributed to Canada’s growing reputation as a provider of key business software. Startups with multi-million or billion-dollar valuations drive the appeal of newer companies working in the same field.

It’s important not to overlook the impact of other industries currently drawing millions in investment. Financial software, B2B media and information services, and IT consulting/outsourcing all received over $1 billion in investment, with the automation and application industries close behind with several hundred million.

2020: a look ahead

More growth, more investment, and more exits. Forfty five companies exited in 2019, including Wave, Solium, Lemonstand, and SimpleTax. Many of these were acquired by larger corporations, such as MailChimp’s acquisition of Lemonstand, or Solium becoming a subsidiary of Morgan Stanley.

A billion-dollar buyout isn’t in the cards for every SaaS company out there. No matter the goals, however, companies can look forward to a business environment in Canada that’s skewed toward success. One only needs to look at the data for 2019 to see where we’re going in 2020. For Canadians across the provinces, the future for SaaS looks brighter than ever.

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Aphria lines up $100-million investment as CEO touts balance sheet strength – BNNBloomberg.ca

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Aphria Inc. announced Friday it has lined up a $100-million investment from an unidentified institutional investor, representing a fresh capital injection which the Canadian cannabis producer has earmarked for “opportunistic” international expansion efforts.

Aphria Chief Executive Officer Irwin Simon told BNN Bloomberg in a phone interview that the investment demonstrates confidence in Aphria as well as the company’s management and strategy.

“It shows [the investor] is a believer in the [cannabis] category where a lot of licensed producers have had trouble finding any type of financing,” Simon said.

“We didn’t have to do this. We have close to $600 million on our balance sheet. It just gives us a much stronger balance sheet to continue doing what we’re doing.”

Cannabis companies have faced a capital crunch in the past several months following a broad sell-off in the legal marijuana space and weaker-than-expected quarterly revenue figures. However, Aphria has emerged as one of the few Canadian cannabis producers to report positive adjusted earnings before interest, tax, depreciation and amortization, a key metric that other major companies have yet to achieve.

The yet-to-be-named investor will acquire about 14 million units at $7.12 apiece. Each unit includes one common share in Aphria as well as one-half of a common share purchase warrant priced at $9.26. The warrants are set to expire two years after the deal closes, Aphria said in a statement.

If the investor exercises all warrants, they will acquire about 21 million shares in the company, making it Aphria’s leading shareholder, according to Bloomberg data. John Cervini, an Aphria co-founder, is currently the company’s leading shareholder with about 9.8 million shares, or about 3.9 per cent of the company, according to Bloomberg data.

Simon declined to specify who the institutional investor is, citing a confidentiality agreement, but noted it would assume less than 10 per cent ownership of the company if the warrants are exercised in full.

“When someone writes a $100-million cheque, that’s going to be a sophisticated investor who knows Aphria and believes in Aphria,” he said. “It’s one investor with one cheque. With the warrants, it’s an opportunity to have an additional $64 million available to us.”

He also said Aphria is eyeing “opportunistic acquisitions” globally as well as within Canada to deploy its new capital, but declined to specify any areas where he is particularly interested in investing.

“There’s going to be opportunistic assets and a lot of stuff to do,” he said. “Over the next six months, the industry will condense and consolidate and I’d like to be prepared and have the right balance sheet to do that.”

Raymond James cannabis analysts Rahul Sarugaser and Michael Freeman said the $100-million investment signals that there still remains positive sentiment around cannabis players with strong balance sheets.

“The market clearly expects [Aphria] to not only weather the present storm, but to then flourish when the market recovers, likely during the back half of 2020,” the analysts said in an email to BNN Bloomberg.

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new — and controversial — Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.

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How the coronavirus could sicken stocks — plus other top investing tips – MarketWatch

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Don’t miss these top money and investing features:

Money and investing stories getting attention from MarketWatch readers include reports on how the coronavirus outbreak in China could affect stock prices, how the U.S. stock market performs following a strong first month of the year, the Dow Jones Industrial Average’s faces a stiff test, and why investing in companies promoting environmental sustainablility is good for the planet and your portfolio.

— Jonathan Burton

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HANNEN: Province needs to optimize child care investments – Toronto Sun

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BY ANDREA HANNEN

This week, the Provincial Standing Committee on Finance and Economic Affairs received submissions from stakeholder groups offering input on Ontario’s spring budget.

These public consultations allow MPPs and citizens to work together to improve the performance of taxpayer spending.

The Association of Day Care Operators of Ontario (ADCO) was one of the groups that made a formal submission. ADCO represents Ontario’s independent licensed child care centres — those not run by a public sector organization such as a municipality or a school board, or a quasi-public sector organization such as a YMCA.

Most independent licensed child care centres are small businesses run by women. One of the things that distinguishes these child care providers from municipalities, school boards and quasi-public sector agencies is their ability to create new licensed child care spaces without burdening taxpayers with the cost of expansion.

Both the McGuinty and Wynne governments seemed to see these small businesses as barriers to the growth of institutional child care. That’s what the Full-Day Kindergarten program (FDK) was all about. It also seems to be what prompted the Wynne government to enact the Child Care and Early Years Act (CCEYA), which allows municipalities to limit the supply of licensed child care within their boundaries, so that parents have fewer alternatives to these institutional settings.

A 2019 report by the Ministry of Education reveals that some 2000 of Ontario’s licensed child care centres closed between 2008 and 2018.

In recent weeks, the impact of these closures has been felt by tens of thousands of Ontario parents as they struggled to find alternative care arrangements for their children when strikes by teacher unions shut down not only FDK but also licensed child care centres and before-and-after-school programs located in public schools.

For this reason alone, the Ford government should stop investing taxpayer dollars in school-based child care spaces.

It should also do so for financial reasons.

Currently, municipalities and school boards may receive anywhere from $30,000 to $60,000 per space to create more child care. Yet, independent licensed child care owner/operators are able to create similar, if not better, facilities for half this amount and they do it at no cost to taxpayers. All they need is assurance from the Province that it is safe for them to invest in expansion.

The province can provide this assurance by:

– Amending the Child Care and Early Years Act (CCEYA) with an eye to eliminating the provincial red tape and municipal conflicts of interest that make it harder for new independent licensed centres to open;

– Creating an online, self-serve portal where parents can explore, calculate and/or apply for the various child care funding support options available to them without having to consult with a municipal bureaucrat;

– Expanding the CARE tax credit so that more families qualify for it and fewer are forced into the chaos and uncertainty of the Provincial fee subsidy system, which is run differently by every municipality;

– Respecting parental choice by ensuring that fee subsidies follow children to whatever licensed child care programs their parents choose to use;

– Simplifying the Provincial funding formula used to allocate child care dollars to municipalities, so that less taxpayer money winds up being diverted into needless municipal overhead instead of actually helping families.

Currently, the province invests more than $3 billion annually into FDK and municipal child care system management. This investment needs to yield a better return.

At minimum, it should serve more families and be more responsive to their needs. It should also help shield children’s early years from the whims of big labour.

To achieve these goals, the province needs to stop burdening taxpayers with the cost of licensed child care expansion and start focusing on policy reforms that will enhance parental choice by increasing small business investment in the sector.

— Andrea Hannen is Executive Director of the Association of Day Care Operators of Ontario (ADCO)

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