Series “A” financing: Will it be crunch, cliff, or sustainable customers?

Much has been written in recent months of  The Series “A” Crunch. Some view it as an epidemic that will cause the startup bubble to burst. Others see in as a rain storm that will never come. I have been opining on this issue for a number of months and feel it is an issue that needs to be openly discussed, especially in Canada.

A recent study by Deloitte in Canada “The future of productivity: An eight-step game plan for Canada” determined there is a dearth of startup financing in Canada. Canadian angels constitute only 0.36 per cent of the Canadian population – barely half the U.S. level – and the per capita availability of venture capital (VC) funding has also historically lagged the U.S., sometimes by more than twenty-fold. This issue is driving some entrepreneurs to leave Canada for jurisdictions where capital is more readily available.

Often the balancing argument for startups in Canada is that they have better access to more dependable talent in Canada; however, there is evidence this advantage is eroding.  I am hearing anecdotally that many Canadian startups are having to seek talent offshore  by having their development work done in places such as India and Pakistan.

Why is The Series “A” crunch such a prolific issue today? It is partially due to the condition that the cost to incubate a company has dramatically decreased in recent years and in many cases the “family & friends” round of financing and seed stage financing by angels is enough to get a company up and running. This early stage financing in Canada is well supported by the various financing programs of both federal and provincial governments. The same Deloitte report says “the survey also revealed that Canadian firms were much more responsive to, and potentially more reliant on, government support for R&D”. The problem is when the company attempts to scale and accelerate its go to market strategy, the financing resources are just not available for the round where the company is required to raise between $2 to $10 million dollars. This is often referred to as The Death Valley of Financing.

Due to the success of many of these earlier stage financing programs there are and will be more candidates looking for  this Series “A” financing. Another contributing factor that I find from companies that apply to the angel group where I am a member: Maple Leaf Angels, is that many of the investee companies are asking for monies to only give them a runway of nine to 12 months. The startup would be better served if they were able to raise monies to give themselves a runway of 18 to 24 months so they could accelerate into their sales period and create some organic growth. To accomplish this many of the Angel Groups in Southern Ontario have started to syndicate deals in order to give companies this increased financing that will provide that 24 month runway.

Although I believe this is an inevitability for many companies, those highly successful startups will always be able to get funding. I could not say it more poetically that Dave McClure of 500 Startups while at Startup Fest in Montreal this week. “Scalable customer acquisition profitably will ensure you are able to obtain Series A funding.” He eloquently pointed out in his presentation “that you can beat the Series “A” Crunch with Customers, Distribution and Revenue”. Or his more pointed way of saying it ” get to sustainability and make money.” Without creating sustainability a startup will face a Series “A” Cliff.

I have been conducting research to whether start-ups in Canada in the face of not being able to raise Series “A” VC financing may consider going public through Capital Pooled Corporations (CPC), a program of the TSX Venture Exchange or will they just consider it a failed opportunity and move on to the next idea having being schooled on the opportunity. As a result of these discussions with startups I will be collaborating with other investors and a legal team in forming a CPC Investment Group (which requires a minimum of five people with a minimum investment of $20,000 each in order to make application to the TMX Group for a CPC).

I don’t believe this scenario has been fully played out and as the discussion continues other alternatives will continue to be explored.

Gerard Buckley
Gerard Buckley
Gerard has been working in the financial industry for over 30 years, helping companies strategically plan for accelerated levels of growth at Scotia Capital, Maple Leaf Angels and Jaguar Capital where he is now Managing Director. Gerard, a Certified Management Consultant leads a management consulting practice with mandates focused on growth in entrepreneurial companies and is an expert in structuring companies to access financing by employing governance, financial management and funding strategies. Gerard has worked on Merger & Acquisition teams transacting over $10 billion of deal flow in his career. Read more about Gerard's advisory firm at

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