If there’s reason to be encouraged about the Canadian startup landscape, it is the growing number of large venture deals that have happened in recent months by companies such as HootSuite, Top Hat Monocle, BuildDirect and WattPad.
The latest company to raise a significant amount of money is Montreal-based Beyond the Rack, which unveiled a $10-million venture debt deal with Wellington Financial. To get more details about the deal, I reached out to Mark McQueen, Wellington’s president and CEO.
Can you provide the story behind this investment?
This company, like many, benefits from increased working capital, and the ability to raise debt in a growth capital structure is so much cheaper and less dilutive than raising equity. We’ve been watching this company for three years, and it was a great time to partner with them. It’s our job to stay on top of 600 companies a year and be there at the right time for the good ones.
How quickly did the deal happen?
Beyond the Rack’s management has expertise in raising capital so it was very seamless. They have lots of high-quality U.S. VCs around and they how to do it.
How significant is this deal for Wellington?
A $10-million transaction is large in most situations. Our average deal size is $5-million to $6-million. Twenty out of the last 25 transactions have been U.S. backed, U.S.-based stories. It is great to do two deals in a week in Canada. We announced Insception Biosciences and Beyond the Rack, and, hopefully, it speaks to a beginning of more activity in Canada. It has been quiet for too long from where we sit, which are companies with $5-million to $10-million in trailing revenue. So, if there aren’t enough capital of growth capital, we will not be as active in Canada. There was a period for 18 months where we did one deal in Canada.
What’s the Canadian startup landscape like these days?
I must say this year will be on par with the last three years. There has been modest uptick each year. This year will be on par with last year. What is great about this year in our view is the great quality to this year’s pipeline. We have issued more terms sheets, closed more deals and folks are doing better. People are hitting their forecasts and things are better out there than they were 24 months ago.
What can be done to support the Canadian startup ecosystem?
I think Canadians need to tell their Members of Parliament the innovation economy is as important as the resource economy period, and they need to tell their MPs it is okay to take risks and try new things, and okay to encourage entrepreneurialism in Canada. It doesn’t always work out but they won’t hold their MPs accountable if some things don’t go perfectly because innovation, by nature, is not straight up to the right. I think the taxpayer needs to get behind this part of the economy. The jobs of yesteryear aren’t the jobs of the future. 600,000 auto industry jobs have disappeared in 10 years, they are not coming back. There is $12.5-billion of R&D being done by government and universities every year but there’s no way much of that is being commercialized, so taxpayers should see it as a problem. Their investment is not being rewarded with jobs.
What do you think about the federal government’s $400-million commitment to VCs in the last budget?
Jim Flaherty’s budget announcement was a great start. We need that money to be deployed and we need the next budget to have another chunk of money to carry on. We need to replicate the Communitech accelerator across the country – everywhere where it makes sense. You see the Tannery in Kitchener and it is impressive. It is better than the one in Boston and Chicago. It is hard to believe in this province we have a better incubator than either of those two markets, and yet there is, and it has worked. Government needs to be encouraged to do it across the land where it makes sense.