Canadian startups building rather than selling, report says

Fewer Canadian startup CEOs are thinking of up and selling their companies, preferring to stick it out for the long haul, according to a new report from PricewaterhouseCoopers (PwC).

In a report released May 2, only 44 per cent of about 200 CEOs surveyed said they were considering a merger or acquisition of their companies. Just a year ago, 76 per cent said they were giving the matter some serious thought, marking a huge drop in the number of CEOs considering exiting the market.

Twenty-one per cent are looking into a partial sale of their companies, but 30 per cent said they have no plans to exit at all, showing that many Canadian startups are trying to solidify their businesses rather than sell early. The majority of survey respondents were in B2B, software as a service and enterprise application markets.

Seeing a jump in the number of CEOs holding onto their startups is a good sign for the industry, says Harley Finkelstein, chief platform officer at Shopify Inc. Finkelstein says the Ottawa e-commerce powerhouse had several opportunities to accept a merger or acquisition when it was still in its infancy. So why didn’t it?

“Ambition. That’s what it’s about. Part of the reason people sold earlier or at an earlier stage years ago is because they had a particular skill set, and it was very difficult for them to go into new areas because of geography,” Finkelstein says.

“But today, things are easier. Shopify’s in more than 100 countries … And now, we can do most of this ourselves. All we need [in Canada] is to give ourselves a better kick in the butt.”

Founded in 2006, Shopify made its name as an e-commerce platform that enables retailers to sell their goods online. It now boasts more than 50,000 e-stores under the Shopify umbrella, including General Electric, Amnesty International, Tesla Motors and the Encyclopedia Britannica. Business and tech magazine Fast Company named Shopify as one of the world’s 50 most innovative companies in 2012.

Finkelstein says he thinks the reason why Canadian startup CEOs are holding rather than selling is that in the past 12 months, more venture capitalists have entered the Canadian market. With more funding available, it’s easier to continue to develop a company rather than see it acquired and have to work within the buyer’s constraints. Even Canadian venture capitalists are jumping in and becoming bolder, he says.

“And at a lower level, there’s crowdfunding, angel investors … We’re no longer living in the 1980s, Gordon Gekko, private equity world where you build and you sell and you build and you sell,” he says.

The 2013 PWC report reflects this – a major factor enticing startup CEOs to stay is that they’re reaching the profitability benchmark. Thirty-six per cent of CEOs said their companies were now profitable. Another 28 per cent said they expected to hit that point within one year, while 26 per cent predicted they would be in the black in two years.

We reported on the preliminary highlights of PwC’s report in April, when PwC presented them at the Vision to Reality conference in Toronto. This year, 41 per cent of Canadian startup CEOs cited revenue growth as their biggest concern, replacing talent as their biggest concern in 2012. Another 19 per cent said funding was their biggest issue, with hiring and retaining talent coming in at 11 per cent.

But even those issues are eclipsed by the possibilities now opening up in Canada, Finkelstein says. Although Shopify once toyed with the idea of leaving Canada, he says there’s plenty of incentive to stay, thanks to funding from savvier investors and an influx of engineering talent coming from Canadian universities.

It’s a good time for entrepreneurial types to start building, and to do that independently. Like in Shopify’s case, ambition is propelling Canadian startups to aim higher, he adds.

“The end goal isn’t necessarily to sell your business anymore, and I think that was the case in years past,” he says. “The paradigm of what a successful founder and entrepreneur is has changed as well … It’s not necessary to sell your company to realize your ambitions.”

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Jim Love, Chief Content Officer, IT World Canada

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Candice So
Candice So
Candice is a graduate of Carleton University and has worked in several newsrooms as a freelance reporter and intern, including the Edmonton Journal, the Ottawa Citizen, the Globe and Mail, and the Windsor Star. Candice is a dog lover and a coffee drinker.

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