Investors optimistic about B.C.’s startup ecosystem despite decline in VC investment

While investment activity in B.C. has fallen over the past two years — landing the province behind Alberta by $95 million so far in 2024 — local investors remain positive about the future.

At entrepreneurship@UBC on Tuesday, Startup TNT’s William Johnson moderated a session that touched on B.C.’s startup ecosystem, including context on its current state of decline, and considerations for startups looking to raise capital and grow. 

The speakers included Amy Rae, partner at Vanedge Capital; Byron Thom, partner at BDC Capital’s industrial innovation venture fund; and Kenndal McArdle, principal at Pender Ventures. Here are their key takeaways.

How B.C. can catch up 

McArdle emphasized that, in terms of its population, B.C. should be further ahead in investment.

During the first six months of 2024, companies in the province raised $288 million collectively across 43 deals, whereas those in Alberta raised $383 million across 41 deals. The numbers demonstrate that B.C. is no longer one of the top three VC-backed provinces — with Ontario, Quebec, and Alberta securing those positions.

The venture capitalist noted that while B.C. is catching up to Alberta's government-led funding, the ecosystem seems different in comparison.

“It feels like the ecosystem [in Alberta] has more energy and people are more optimistic,” he said. “I think it's conversely related to what's happening in the energy sector a little bit. They see this existential risk, so they're all pushing in the same direction. Whereas, I think that in Vancouver and B.C., we haven't had that existential crisis yet.”

He added: “We're just at the very beginning of it, unfortunately. But I also think that it can be a net positive, because the one thing that I think from the long-term perspective is that we’re going to have more and more investment into tech. So we need to find that way for us to – I hate to say it – start taking some of the capital that's been in real estate or in other industries here, and start putting it, hopefully, to more productive and entrepreneurial uses.”

Why fewer startups are launching 

Thom noted that compared to 20 years ago, there are nearly half as many people starting businesses. That’s down to a range of factors, like the country experiencing rising costs of living.

“Even though the economy and jobs are plentiful, everyone just feels and struggles with the price of housing and food,” said the former lawyer. “So what do you do with that? Does that allow companies to go and take risks to be able to go after a bolder vision? Or do they feel compelled to take a job that pays a consistent salary that allows them to put food on the table for them and their families?”

Thom highlighted the calibre of the universities across Canada and questioned how many graduates from, say, UBC or SFU are becoming entrepreneurs versus working for big tech and large paychecks in the U.S. 

“I think a lot of later-stage investors are thinking about that pipeline,” said Thom. “There's only so many companies that are going to fit within my mandate. So I need a certain amount of early-stage companies to come up to solve big problems to then write a large check into. I don't know if I'm seeing as many as I would hope to.”

Takeaways for startups looking to raise capital and grow

Rae said she’s been an investor since around 2004 and has never had so many conversations about getting burn rates down.

“How can you show that you have momentum and you're making gains, but also being very efficient with capital because you're not going to get another round if you're burning a ton of cash?” the fund executive said. “VCs just don't have the appetite for it right now. It's a very risky segment.”

She shared that when she and other investors conduct due diligence on a startup, their flow is different but processes remain similar.

“We still come back down to, ‘Who are the companies playing in this space? Who has momentum?’” Rae said. “And then what does that management team look like? Are they the ones who can bring it to where it needs to be?”

Rae also suggested that while today’s landscape has made building a startup harder, she doesn’t believe that “it’s all negative.”

“I really do think some of the best companies come out of bad times,” she explained. “If you can make it through this time period, it shows that you're resilient and that you have something.”

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