Canadian fintechs shine as investments near record
TORONTO (Reuters) – Venture-capital-backed investment in Canadian financial technology companies hit its highest level in almost two decades last year, even as the flow of funds into major fintech markets such as the United States declined, according to sector data.
Fintechs, or companies that use innovative technology to revamp everything from banking to fraud security, globally draw billions in investment annually.
In Canada, fintech is revitalizing the start-up scene and has attracted a new crop of Canadian venture-capital funds looking to invest specifically in young fintech companies.
According to PitchBook, used by the US-based National Venture Capital Association, venture-capital financing in Canadian fintech was $137.7 million in 2016, up more than 35% on the year. Five years ago, it was $21.8m., and in 2000 it was $7.3m.
Figures compiled by Thomson Reuters show a rise of nearly 74% from 2015 to 2016, to C$264.8m. ($197.41m.), its highest level since 2000, when venture-capital investment in Canadian financial-technology firms reached C$317.9m.
The data vary as some investors do not disclose full information, and methodologies can differ on how the information is collected, how many companies are tracked, what is considered fintech and what constitutes a venture deal.
The figures pale in comparison to the US, where investments reached $4.27 billion in 2016. But the trend in Canada is on the rise, compared with a decline in the US and Britain.
Investments declined at least 30% in the US in 2016, while in the UK they fell nearly 25%, and Singaporean fintech investment sank 65%.
Weaker activity in the US and UK was partly due to market uncertainty around the US election and the Brexit vote in the UK to leave the European Union, as well as smaller deal sizes, according to data provider CBInsights and KPMG.
“From a global stage, Canada is a relatively small market,” said Adam Nanjee, who heads the fintech group in Toronto’s MaRS research hub. “But it’s one of the best markets to build a company around innovation because we have a great test market, great infrastructure for financial services.”
The province of Ontario has among the highest concentrations of tech firms outside Silicon Valley, according to the provincial government, thanks in part to cheaper costs and the cluster of Torontoand Waterloo-area universities producing engineers and developers. The reinvigorated start-up community lured home Canadians – such as the founder of online investment start-up Wealthsimple, Mike Katchen – keen to trade promising careers for a more supportive and less cutthroat environment.
“There’s no loyalty whatsoever [in Silicon Valley]. You’re going to overpay for somebody, they’re going to stay with you for six months, and they leave for the next gig,” said Christian Lassonde, the founder of Canadian-based investor Impression Ventures. “Trying to build a successful company in the Valley has actually gotten too hard.”
California-based Lightspeed Venture Partners, early investors in Snapchat and Nest, has been tracking Canadian fintechs for potential investments.
Lightspeed, which has yet to invest in fintech in Canada, is monitoring start-ups including League, which offers alternative employee health plans, and FundThrough, a lending service for small businesses.
“What we look for are companies... that may start with the Canadian economy but are thinking beyond Canada,” Lightspeed partner Arif Janmohamed said.
Other foreign players are also taking note. Goldman Sachs invested in Toronto-based Financeit in 2015 and nanoPay in 2016. Meanwhile, Japan’s NTT Data Corp., one of the world’s largest technology-services companies, and MaRS announced a partnership in November to help Canadian start-ups expand into Japan and give NTT access to technology being developed by Canadian start-ups.
Maturing big-name start-ups such as Shopify, Wattpad and Hootsuite helped pave the way for the next “cohort of companies that are coming of age on the international stage,” Wealthsimple’s Katchen said.