Assessing the Regional Ecosytem
If there’s a date on which the Atlantic Canadian start-up community was born, it was June 26, 2012. The location was Dieppe, N.B., and the event was the Demo Day of Propel ICT’s Launch36 accelerator, at which community members from across the region and beyond witnessed 11 companies delivering tremendous pitches.
The really interesting things took place away from the stage that night. At the pub afterward, Propel ICT chair David Baxter and executive director Trevor MacAusland swore that the New Brunswick-based accelerator, which had graduated one Nova Scotia company, would grow by becoming more regional in the future. Scott MacIntosh of Fredericton-based tech consultancy SwiftRadius Inc. was introducing Chad Griffin, the CEO of the new Charlottetown start-up Adeptio Health that would soon be spun out of SwiftRadius. And Jordan Smith of Halifax-based OneLobby met Brian Dunphy of Fredericton and Todd Murphy of Saint John; the trio agreed to work together on OneLobby in Fredericton.
The gestation period of the regional community had lasted several years, but on that summer night in suburban Moncton, the vision became a reality. “It was the first time I saw the whole horizon of collaboration that would uniquely make us great at new venture creation across the region,” says Baxter.
Although the distance from Newfoundland and Labrador makes it difficult to host regular events in all of the Atlantic provinces, the rapid development of the start-up community in the Maritimes is astonishing. Start-up communities have become a hot topic for entrepreneurs, investors, and their global support agencies. The discussion was elevated last year by the publishing of serial entrepreneur Brad Feld’s book, Startup Communities, which said these societies must be led by investors buttressed by universities, support agencies, entrepreneurs, mentors, governments, and “flagpole industries.”
The Atlantic Canadian start-up community is coming together in many of the ways Feld outlined but is still in its infancy; many of its key components didn’t exist two years ago. More than anything, the community is being led by the success of a few companies. The recent exits of Radian6 and Q1 Labs of Fredericton, GoInstant of Halifax, Ocean Nutrition Canada of Dartmouth, and BioVectra Inc. of Charlottetown have stoked interest in regional start-ups.
That has helped several companies announce some impressive fundraising deals in the past two years: Unique Solutions of Dartmouth and LED Roadway Lighting of Halifax both attracted eight-figure financing in 2011. And last year high-profile financing was secured by Clarity of Moncton, IntroHive of Fredericton, and Leadsift of Halifax. There was nothing in 2012 approaching Unique’s $30-million funding from Northwater Capital Management Inc. of Toronto, but overall start-ups and innovative companies attracted more money than in 2011.
Tech, biotech, cleantech, and other innovative companies in Atlantic Canada raised at least $59.1 million in 2012, up from at least $55.9 million the previous year, according to data collected by Entrevestor. We use the term “at least” because so many companies and investors are vague about their funding. Some will say they’ve raised money without naming the amount; others will say they’ve raised more than a certain figure. Having canvassed start-ups across the region, we can state that these companies sold at least $59.1 million in equity last year, although our estimate is closer to $60.5 million.
What was interesting about fundraising in 2012 is the domination of seed funding. People across the region seemed to be stirring from slumber, having been awakened by the Radian6 and Q1 Labs exits and rising to start companies. Some 65 companies received funding, averaging just over $900,000 each. The previous year, only 24 companies had raised equity funding. Does that mean more money was raised on average in 2011? It would be misleading to believe so. As we mentioned, the $30-million Unique funding dominated the market in 2011, and the $11.6-million financing by LED Roadway also contributed to the total. If you strip out those two deals, the average funding in 2011 was worth about $650,000.
So in 2012, we funded almost three times as many companies across the region as the previous year, and for the most part those companies were able to raise more money than they had in 2011. Yet there’s a cautionary note here: such a flood of seed funding means there will be an even larger flood of companies looking for follow-on funding, leading to multimillion-dollar rounds in the next few years. That will lead to increasing pressure to find more money from outside the region.
Much work has been done to attract more venture capital from outside the region, but it didn’t show up in vast quantities in 2012. One of the quirks of the last year’s funding story is that 20 different companies attracted angel funding from outside the region, up from only three a year earlier. But the VC funding was dominated by funding from local bodies, either the provincially owned VC agencies or GrowthWorks Atlantic Venture Fund. Only five companies attracted venture capital backing from outside the region in 2012.
The increased flow of money into these young companies is part and parcel of the enhanced ecosystem and development of the start-up community. The community depends on access to this capital, and investors feel reassured putting money into these companies because their chances of success increase as the community develops.
But funding bodies are only part of the equation. Underpinning the community are the institutions that span the entire region, including Newfoundland and Labrador. The Atlantic Canada Opportunities Agency is pre-eminent in that category. And Springboard Atlantic, which ushers university research to the broader economy, works with 18 institutions throughout the region. Invest Atlantic, the premier entrepreneurial conference in the region, has strived from the outset to represent all four provinces; its Pitch101 series is holding events in each province. East Coast Start-up Week included representation from the Maritimes but also from Fogo Island off Newfoundland.
Within the Maritimes, more is being done because the cities are within driving distance of each other. Launch36’s latest cohort is balanced evenly among the provinces. Events such as MentorCamp and DemoCamp have worked hard to attract people from across the region. As the community grows, the emphasis may not be on greater geographic expanse or new programs so much as managerial mentoring. The region has done a fantastic job of channelling seed funding into a range of companies with great prospects. The challenge may now be to convert great ideas, people, and entrepreneurs into mature managers. The goal is to teach them the changes that are needed to go from managing five employees to overseeing 50.
David Baxter says there may even need to be an evolution of Propel ICT’s focus beyond its accelerator program, Launch36. Because the distances are daunting, rather than a group of companies meeting once a week for five months in a central location, the organization should create “mentor townships,” where mentors within communities would guide young companies to bona fide businesses.
“Sometimes I find that an accelerator’s focus on launching new ventures alone results in start-up orphans, and then what do you do?” says Baxter. “Maybe we become a regional network of mentoring capacity to help entrepreneurs grow their companies from launch to their full potential.” Clearly, the regional community is established but it’s continuing to mature.