Investment in the B.C. tech industry fell once again in 2017, according a recent report by audit and tax advisory firm KPMG.
The decline is part of a downward trend that has continued for the past four years, after the region achieved five-year high of $860 million in 2014.
The amount of investment received by companies in the province is one indicator of the health of its tech sector. Business on the rise find it easiest to pull in cash, and can use the money to increase staff and refine products, resulting in more sales. Those organizations then continue to grow, creating new jobs, attracting more talent, and inspiring employees to create spinoff companies of their own.
In 2017—the last year studied by the report—investment dropped to $388 million, a figure down 44 percent from 2016, and the lowest of the five years recorded in the data. The decrease is largely due to a decline in venture capital funding (financing from firms or funds who believe a company can make them big returns). Angel investment (money contributed by an affluent individual in exchange for a percentage of the profits) remained consistent across the five year period.
Despite the drop in total funding, however, B.C.’s average deal size—the amount of money given to one company—has increased. Rising steadily over the past three years, the figure grew to around $7 million in 2017. That value ranks favourably against other provinces, with B.C. this year outpacing Ontario by over $1 million.
The growth in average deal size correlates with the expansion of B.C. companies as a whole. Between 2014 and 2016, the last year data in the report, the province saw a three percent growth in the number of companies with 10 to 19 employees, and a 19 percent rise in organizations with 20 to 49 members. More established companies tend to attract more investment, so 2017’s increase in average deal size could be pointing to a growing maturity in B.C.’s tech sector.
Nevertheless, the report suggests that the industry requires more investment to continue to expand. It notes that the B.C. tech sector can do more to capture capital and grow financial commitment from venture capitalists, and that it is particularly important to create more access to later-stage financing. Nearly two-thirds of 2017’s venture capital funding went to early-stage companies.
“The B.C. tech ecosystem is a strong cluster of industry, academia, and government which, if successfully brought together, can unleash innovations that can be globally commercialized at scale,” says Jameel Ahamed, partner and B.C. lead of digital transformation and innovation at KPMG, in the report’s executive summary. “The opportunity is here, and it is our collective responsibility to come together to realize it and take our rapidly growing tech sector to the next level.”
Raising and retaining capital from venture funds and angel investors requires B.C. companies to be more aggressive, and actively pursue financing from international firms as well as those based at home, the report notes. Canadian investors are notoriously cautious in dispensing their money.
“B.C.’s strategic location as a gateway to Asia and its Cascadia Innovation Corridor partnerships provide B.C. technology companies with new growth markets and opportunities to compete and collaborate at a global scale,” Ahamed says. “The B.C. technology sector has made incredible strides over the last few years by launching technology products and conducting world-leading research. However, it is clear that in order to scale, more investment is required to develop the talent that will sustain these companies in the future.”
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