WhyVenture CapitalisEssentialto theCanadian Economy
The ImpactofVenture Capitalon the Canadian Economy
January 2009
Acknowledgements
Thisreport, and the research behind it, would nothave beenpossible withoutthe supportand commitmentofmanyparties. On behalfofinnovatorsand entrepreneursinCanada, venture capitalinvestorswho backthem, and thecitizensofCanada who are stakeholdersin the successof our country’sevolution toward a knowledge-basedeconomy, we would like to recognize and thankthefollowing contributorsto thisproject.
ReportAuthor & ProjectDirector
Dr. GillesDuruflé
Steering Committee
Dr. Robin Louis, Chair, pastCVCA PresidentCharlesCazabon (BDC)Steve Hnatiuk(Yaletown Venture Partners)HubertManseau (Multiple Capital)Richard Rémillard (CVCA)Annie Thabet(CeltisCapital)
Lead Sponsor Supporting SponsorsResearch Data & Analysis
Dr. GillesDuruflé oversaw the methodologyand the resultsofthe economicanalysis.E&B Data designed the research methodologyfor theeconomicimpactanalysis, conducted the surveyandprepared the reportentitled “The EconomicImpactof Canadian TechnologyVenture Backed Companies”. Italsocontributed to the Main Report. E&B Data’steam wascomposed ofJean Matuszewsky, FrédéricChevalier, AnissaSeghier, Philippe Bériault, NicklausDavey, Pierre BèsandLia Bozneanu.Thomson Reutersorganized and provided data on theventure capitalindustryand the companiesto be surveyed.Itcontributed to the methodologyofthe studyand to theidentification ofpre-1996 venture capital-backedcompanies. Thomson Reuters’ team wascomposed ofKirkFalconer and Jean Potter.
1. The Canadian venture capitalindustryhasa significantimpacton the economy
Between 1996 and 2007, venture capitalinvestorsfinanced2,175 technologycompaniesin Canada. 1,740 ofthose wereoperating in Canada in 2008. In addition, prior to 1996, itfinanced 15 companiesthatare stilloperating and havesaleslarger than $ 50 million in 2008.On average these 1,755 companieshave salesof$ 10.5million and employmentof47 directjobseach. Theyare amixofsmall, medium and large companies.In aggregate, theygenerate salesof$ 18.3 billion:• $ 15.4 billion in ICT,• $ 1.9 billion in Life Sciences,• $ 1.0 billion in Other Technologies.Theyemploy63,955 people in Canada and 17,760 abroad.In addition, theygenerate 83,549 indirectjobsin Canada fora totalof147,504 directand indirectjobsgenerated inCanada which represents1.3% ofallprivate sectoremployeesin Canada. Indirectjobsare jobsgenerated inother companiesthrough the purchase ofgoodsandservicesfrom these companies. Theyare calculated on thebasisofindustry-weighted employmentmultipliersprovided byStatisticsCanada.
1
The 51,050 directjobsin Canada in ICT venture capital-backed companiesalone represent8% ofthe totalsectoremploymentand the 5,069 directjobsin venture capital-backed Biotechnologycompaniesrepresent34% oftotalemploymentin thatsector.Grossdomesticproduct(GDP) isthe measure oftotalvaluecreated in the countryduring one year. In 2007, thecontribution ofventure capital-backed companiesto theCanadian GDP was$ 14.5 billion, 0.94% oftotalGDP: 0.54 %directlythrough compensation, profitsand taxespaid bythese companiesand 0.40% indirectlythrough the activitygenerated in other companiesand sectorsin Canada due tothe goodsand servicesboughtbythese companies
2
.The impactofventure capital-backed companieson theCanadian economyisquite significant: close to 150,000jobs(1.3% ofallprivate sector employees) and nearly1% of GDP. The impacton growth isalso important, since venturecapital-backed companieswhich responded to the studygrow more than 5 timesfaster than the overalleconomy.Moreover, their impacton innovation (R&D and patents) andexportsisverysubstantial.There are additionalmajor benefitsbeyond these economicmeasures. (i) Successfulventure capital-backed companiesgenerate wealth and talentwhich are reinvested in the nextgeneration oftechnologystart-ups; (ii) theycreate serialentrepreneurs; (iii) theyallow investmentsbybusinessangels, and (iv) theyprovide a source ofexperiencedmanagementtalent. Alongside businessangels, venturecapitalfundsplaya criticalrole in linking these poolsof wealth and talentto new start-up companies.
1See Methodologyin AppendixB2GDP indirectimpactiscalculated on the basisofindustry-weighted GDP multipliersprovided byStatisticsCanada. See Methodologyin AppendixB.
Executive Summary
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