What the 2019 Blockbuster Tech Exits Mean for the Sector

Published October 3, 2019 | 6 min read

The recent spate of high profile exits, along with Shopify’s ongoing success, signal something bigger unfolding: a thriving ecosystem that is giving tech companies more options for growth and scaling.

The Canadian tech landscape has seen several exits this year in excess of half a billion dollars. What signal does this send to Canadian tech firms?


Not long ago an exit of $200 million would be an enviable number for a young Canadian tech company.

However this year, we saw Montreal-based Lightspeed POS launch a rare Canadian tech IPO that valued the company at over $1.4 billion at offering. A few months later, in quick succession, we saw Toronto’s Intelex Technologies exit in a US$570 million acquisition deal with Industrial Scientific, a subsidiary of fortune 500 firm Fortive, and H&R Block paid $537 million for Wave Financial.

Meanwhile, Shopify Inc has been one of the most successful tech IPOs in Canadian history with the stock on a hot streak all year. Shares have rallied from $17 when RBC Capital Markets (RBC) took them public in 2015 to over $350, making it one of the largest companies by market cap on the TSX and surpassing many Canadian blue chip names.

In Canada, where deals - with a few exceptions - have historically been more modest, the recent spate of high profile exits, along with Shopify’s ongoing success, signal something bigger unfolding: a thriving ecosystem that is giving tech companies more options for growth and scaling.

For many Canadian entrepreneurs with a smart idea, there has rarely been a shortage of early stage financing opportunities. In the first six months of this year, a total of $2.15 billion in venture capital money was invested, with an average deal size of $9 million - a 26 percent increase from the previous five-year average, according to data from the Canadian Venture Capital & Private Equity Association (CVCA). Roughly half of the total was for seed and early stage investments.

Previously, companies could bootstrap themselves or raise early stage venture capital in order to reach $20 to $50 million in revenue, but with few avenues for additional rounds of funding. Making that leap from $50 million in revenue to $100 million was rare in Canada. Startups would optimize their business for profitability over growth before eventually making an exit.

Afterall, investing $5 million and selling for $20 million is a pretty decent return on investment -but a $20 million company is very different from a $1 billion one, and the chasm to get to a billion was still too great for most companies to cross.



Canada has a world class education system, great entrepreneurial tech talent, and is a centre of excellence in artificial intelligence research. We have a strong software sector and our fintech cohorts have attracted international accolades. CBRE ranked Toronto as North America’s fastest growing tech market in its 2019 Scoring Tech Talent report this summer, noting the city added more than 80,000 tech jobs in the last five years.

But for a long time, there was not a lot of late stage venture or growth equity capital, which tend to be larger funding rounds, to support growth in the sector. The dominance of the resource industries in Canada did not help matters, as investment money flowed to energy and mining firms.

That funding void in tech was an opportunity for American investors such as JMI Equity, Spectrum Equity, and many others, to come north and put their vast resources to work in a far less saturated and competitive market than the United States. The fertile hunting ground meant they could be the first growth equity investors in a company (or in some cases the first institutional money), rather than the third or fourth.

American investors, with their deep multi-billion-dollar pockets, still dominate the growth equity landscape, but their move into Canadian territory has been a wakeup call for Canadian funds to pay more attention to investing growth equity in home grown talent.

Shopify’s high profile exit in 2015 was also a catalyst and an example for the Canadian tech industry. In recent years, a public policy shift to allocate more money toward innovation has also bolstered confidence toward the sector and its long-term potential.

Meanwhile, the fall in commodity prices and the resource sectors’ decline has helped move more money into the tech space as well, while entrepreneurs who profited from earlier deals are now “paying it forward” by becoming investors themselves.

Today, the financing void for scaling is getting filled not only by American funds, but also by Canadian institutions like OMERS, Ontario Teachers’ Pension Plan (OTPP), Canada Pension Plan Investment Board (CPPIB), iNovia, and Georgian Partners. Some of these Canadian players began by partnering with their more experienced U.S. counterparts, but they too are now beginning to take a lead in dealmaking.

Across all sectors, CVCA data shows a steady increase in venture capital money flowing toward later-stage (companies generating revenue, but not necessarily profitable) and growth equity investments (significant minority investments to drive growth and scale, with option to facilitate exit) since 2015, when over $900 million was invested across more than 125 deals. The venture capital amount invested grew to some $1.7 billion, spread across nearly 100 deals by 2018. Evergreen Coast Capital, for example, led a $120 million investment in predictive search technology firm Coveo, with RBC acting as a placement agent for the financing.

In the first half of 2019, more than 40 percent of the VC investment total have been later stage and growth equity deals, with some $990 million invested across nearly 50 companies. Eleven “mega-deals” were over $50 million, according to CVCA figures.

Overall, venture investment activity in the first half of the year totaled at least $2.2 billion from more than 255 deals, according to different data sources. Over $1 billion, or some 53 to 58 percent of the total, went to tech firms.



In terms of exits, there have been few Canadian tech IPOs over the last decade and few M&A exits over $500 million.

However all that changed this year. VC-backed exits are on track to far surpass the 36 last year that totaled $989 million. There have already been 20 VC-backed exits in the first half of 2019 totaling $2.1 billion, with three of the top five from the IT sector.

Companies like Lightspeed and Intelex benefited from sizeable investments that put them on a much more ambitious path. Intelex, for example, secured a $160 million strategic growth investment four years ago.

That level of funding gives tech companies much more breathing room to focus on scale than a $5 or $10 million infusion would. In the first half of 2019, the top three disclosed Canadian VC investment deals were all over $100 million, and the top ten over $50 million. More than half of those deals were in the tech sector.

Being backed by a well-funded institutional investor means reaping other benefits, as well.

When a startup is bootstrapping with modest funds, the board might consist of some very smart people, but they do not always have the same depth of experience as the investor who helped successfully scale numerous other companies. Having an experienced VC executive bring their playbook and sit on the board of directors is an invaluable resource.

With the pool of money growing in Canada - both from domestic and foreign sources - we expect to see more Canadian tech companies going for the kind of scale typically more common in the United States.

RBC has seen increasing interest in private placements as well, exemplified by our role in last year’s Coveo investment and Q4 Inc’s $50 million series C funding led by Napier Park Financial Partners. Given the strong interest from U.S. investors eyeing investment prospects in Canada, Canadian banks with a global footprint are ideally positioned to manage those cross-border flows.

Overall, we are seeing companies staying private longer, focusing on growth, with much more ambitious exit goals.

This is not to say that every company should or must stay for the long haul and aim for the billion dollar exits. Bigger is not always better, and some entrepreneurs and VCs may only be interested in commercializing an idea, and less interested in scaling it. In those cases, exiting with a satisfying $20 million makes sense, allowing them to perhaps move on to another project.

The most important difference for tech firms today versus several years ago is that as more money pours into the sector, founders and their team will have more options when assessing the direction of their company’s future. And more opportunities is the surest path to sustaining a burgeoning Canadian tech ecosystem.



VC & PE Canadian Market Overview Reports for H1 2019

CPE Media: Canadian Venture Capital Report First Half of 2019