Nov22526 Private Equity & Venture Capital Awards 2023 | Wealth & Finance Oct23154 Best Software Startup Support Firm 2023 - Canada Geographical diversity and exposure to early-stage venture is more relevant now The global economic outlook is characterised by sustained higher than historic average inflation and low GDP growth, posing challenges for investors seeking to optimise their portfolios for sustainable returns for the rest of the decade. Typically, some modest exposure to the venture asset class goes a long way to injecting higher growth potential to a portfolio, but after many years characterised by venture capital bidding up valuations in mid-to-later stage startup ventures, especially in the US, but also in Europe and Asia, the consensus view is that the best opportunity for growth is in earlier-stage ventures. In this context, high net worth individuals and family offices should consider allocating a small portion of their growth portfolios to early-stage specialist VC firms in adjacent, high-growth potential regions, such as Badhouse Ventures, a micro-VC in Canada with a focus on Canadian early-stage tech startups. The Canadian opportunity in early-stage tech ventures According to the Canadian Venture Capital and Private Equity Association (CVCA, 2023) [https://www.cvca.ca/assets/files/ reports/year-end-2022-vc-pe-canadian-market-overview/CVCA_ VC_Q4_2022_FINAL-2.pdf], there were only 79 pre-Seed deals done by existing Canadian VC firms last year, and only 99 in 2021, despite it being an overall frothy year for later-stage deals. This is over 80 times less than the number of early-stage startup funding rounds in the United States for the same years, representing a significant gap, even after normalising for country size; roughly 11x by GDP or 8x by population. This 7-10x gap is an opportunity. Several other factors make Canadian early-stage ventures an attractive investment option: 1. Strong track record of Canadian startups: Canadian tech startups have consistently outperformed their American counterparts in terms of capital efficiency, generating $0.89 of revenue per dollar of investment compared to $0.78 for U.S. firms (Niosi & Zhegu, 2020). 2. Government support: Canadian governments offers various initiatives which provide financial support to startups and help to create a favourable environment for investment. Notably, R&D-associated salaries can be recovered up to 68% in provinces such as British Columbia on the Pacific coast of the country. 3. Attractive valuation levels: Canadian startups generally have lower valuations than their U.S. counterparts, allowing investors to enter the market at more attractive entry points and potentially achieve higher returns on investment (PwC Canada & CB Insights, 2021) [https://www. pwc.com/ca/en/industries/technology/moneytree-canada-report.html], even when IPOs are not ultimately achieved. 4. Low competition for deals at early stages, but bountiful follow-on investors: Canada is lacking in investing accelerators, has a conservative angel investment culture, and very little dedicated early-stage VC funds (Badhouse Ventures being the only one exclusively focused on software, i.e. SaaS, AI, web3, infosecurity). Conversely, in the past decade there has been significant growth in later stage-focused Canadian VC funds, as well as co-investment in Canadian startups by US-based funds; providing a vast amount of dry powder for potential follow-on investments down the road. 5. Tech ecosystem growth is accelerating: In the last five years, Canadian subsidiaries have been the secret weapon of large multinational tech firms, such as Microsoft, Amazon, SAP, Google, Facebook, just to name a few; each establishing significant offices housing large engineering teams. This is in part due to the rapidity and simplicity of importing tech talent, with local recruiting firms boasting that new international hires can be on the ground, with requisite work visas, within as little as 2 weeks. This ease of hiring talent, as well as the growth in tech workers already in Canada, many of which are projected to leave big tech to start new ventures in the coming years (after receiving the safety of a Canadian permanent residency card), it’s natural that the country, as a whole, and individual Canadian cities, such as Toronto, Montreal, and Vancouver, have been rocketing up the startup ecosystem rankings in recent years, surpassing countries such as France, Germany, or the UK in many rankings (e.g., StartupBlink, Startup Genome). Getting exposure to early-stage Canadian ventures via Badhouse Ventures We looked far and wide – as Canada covers 6 time zones – and were surprised how limited the options are for getting exposure to the earlyFounded in 2020, Badhouse Ventures is a passionate startup support firm with a determined team. Here we learn more about the Canadian tech startup ecosystem and delve deeper as the company wins its title in the Private Equity and Venture Capital Awards 2023. Expanding portfolio diversity: Insights into the Canadian tech startup ecosystem and a highlight of a micro-VC in Canada, Badhouse Ventures, 2023 winner of Best Software Startup Support Firm 2023
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