Sean O’Connor is the venture capital fund manager for Saskatchewan’s Conexus Credit Union
As we look back at what 2019 meant for the Canadian technology ecosystem, the main narrative will follow the unusually high amount of “mega-financings” over the course of the year. Twelve have attracted more than $100-million each in private capital this year.
However, one of the important developments that should help define 2019 is the continued emergence of secondary startup ecosystems. Ottawa continues to harness the momentum of Shopify Inc. Atlantic Canada made headlines in 2019 with Verafin Inc. of St. John’s, a fraud-detection and anti-money-laundering software provider, landing the largest venture funding deal in Canadian history. And one of Canada’s top consumer internet businesses, Wattpad Corp., chose to build its second headquarters in Halifax in 2020. Lastly, according to the Canadian Venture Capital Association (CVCA), we’ve seen huge growth in Saskatchewan’s startup ecosystem with venture-capital financing rising from $4-million at the end of the third quarter of 2018 to $98-million at the end of 2019′s third quarter. The emergence of Saskatchewan’s ecosystem serves as another reminder that not all Canadian venture capital and startups are focused on Toronto.
To fully appreciate how far the Saskatchewan startup ecosystem has come, let’s take a look at where things were in 2015. Our prized Saskatchewan startup, SkipTheDishes, had just recently decided to pick up and move its head office from Saskatoon to Winnipeg. To make matters worse, the next wave of startups struggled to access venture capital. According to CVCA, we were nearing the end of a year that saw Saskatchewan’s startups raise a paltry $3-million in venture capital. The future looked grim.
After some reflection, the provincial government began to find ways to help our startups launch and scale their businesses. Three significant gaps were identified by Innovation Saskatchewan, a tech-focused government agency. The first gap was that Saskatchewan was one of the last provinces without a startup incubator. The second was that it’s difficult for early tech firms to secure their first big customer within the province. The third gap identified was the difficulty in obtaining startup capital from local investors.
The subsequent measures taken could form the blueprint for any province looking to cultivate a startup ecosystem. The results take time, but four years after these difficult questions were asked, we have a community that’s starting to flourish. The first step started with Co.Labs in Saskatoon, the provincially backed incubator officially launched in 2017. In less than three years since its launch, Co.Labs has incubated 85 companies that have collectively raised more than $6.2-million in equity investments and, as of 2019, represent 153 jobs.
Once the provincial government had established a community focal point and space where entrepreneurs could set up their offices, learn from mentors and participate in educational programming, it began to implement a plan for how the government could become a customer for our province’s startups. With the Made in Saskatchewan Technology Program (MIST), Saskatchewan-based startups could quickly get in front of their potential government customers. If there’s a fit, MIST helps provide a less-time-consuming pathway for the startups to land their first government pilot.
With Co.Labs and MIST, Saskatchewan had started to create a platform where companies could turn their ideas into solutions and land their first major customer. This was an excellent start, but still a long way from a formidable ecosystem. Entrepreneurs follow capital. High-growth startups follow capital. Highly skilled jobs follow capital. Innovation follows capital. None of their efforts would provide the outcomes they were looking for if Saskatchewan’s startups couldn’t access capital.
In 2018, the Saskatchewan government provided a bold initiative with the most aggressive investment incentive program in Western Canada. The Saskatchewan Technology Startup Incentive provides a 45-per-cent non-refundable tax credit for tech angel investors, de-risking investments into these startups by almost half. In slightly more than a year, this program has enlisted 112 investors, with 39 tech companies being approved to raise capital.
For any movement to take hold, the private sector needs to pitch in and help carry the momentum. The Conexus Credit Union has been part of that effort, launching Cultivator, a Regina-based startup incubator in 2019 along with a $30-million venture capital fund. Conexus Venture Capital is operated by the credit union, but it’s unique because it has raised a significant portion of its capital from individual business leaders across the province, a handful of other credit unions and one labour-sponsored fund (SaskWorks). Since launching in July, the fund has invested in five startups, deploying just less than $5.5-million.
Consider the effects these initiatives are having. Jordan Boesch chose to return to Saskatoon after spending time in San Francisco to scale 7shifts, his restaurant-scheduling software startup, and has now raised more than $20-million in the company’s Series A round to scale their operations. Katherine Regnier has raised more than $10-million in the past few years to scale Coconut Software, an enterprise fintech firm, in Saskatchewan when most Canadian fintech companies have relocated to Toronto. This year, Brendan King’s Vendasta raised $40-million in the largest investment for a Prairies information and communications company to hire another 350 employees into its Saskatoon office. (Conexus was involved in the 7shifts and Coconut financings, along with other investors across North America.)
Oh, and that SkipTheDishes team led by Josh Simair, Dan Simair, Brendon Sled and Rob Marsh that decided to relocate most of their operations to Winnipeg back in 2015? They’ve begun another high-growth startup, Pivot Subscriptions, based here in Saskatchewan.