4. ANALYSIS OF GAP 4.1. Summary of findings
The evidence presented above shows that Canadian ecosystems are significantly under-capitalised compared with their US peers, especially at seed. Those founders who complained that it is harder to raise seed rounds in Canada than elsewhere have solid grounds for their complaints: it is indeed harder to raise seed funding, whether in terms of the overall likelihood of raising, the amount raised, or the time it takes. The consequence for Canadian ecosystems is that fewer startups progress to later stages, including to exit, thus meaning that there is less recycling of capital and other resources into the ecosystem, and lower overall growth. This study was not specifically a study of VCAP and VCCI, although we note that the data suggests an impact of these schemes on average funding rates. However, during the period of VCCI, total Series A rose at a faster rate than Seed; this is likely a natural consequence of channelling funds through larger VCs rather than angel groups, but has created an imbalance, especially in Toronto-Waterloo. Because seed did not rise at the same rate there, it has created a bottleneck that is affecting subsequent stages and hence overall ecosystem performance.
4.2. Estimates of Series A funding gap 4.2.1. Increasing Series A size
We can apply a similar logic to estimating the amount of ‘missing’ Series A due to smaller round sizes. Below we calculate what additional funding would be needed if: ● The 10% of Canadian startups are Series A funded at the mean of the top 10% of US startups, and: ● The next 15% (i.e. those from 75th percentile to 90th percentile) of Canadian startups are Series A funded at the mean of the same bracket in the US, and: ● The remaining 75% of Canadian startups (i.e. those from 0 to 75th percentile) are seed funded at the mean of the same bracket in the US.
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