Ongoing economic uncertainty continues to dominate the news cycle and capture attention, and understandably so. Repercussions from the pandemic, inflation and tightening monetary policy are clearly still materializing, with the impact on large technology companies especially difficult to ignore. As growth equity investors, the current headwinds are certainly top of mind for us. Nothing is more important than supporting our portfolio companies and ensuring their continued, healthy growth - particularly during turbulent times.
Still, even with today’s market volatility and the resulting challenges, we find ourselves more energized and enthusiastic than ever about one particular area of investment opportunity – an area currently experiencing significantly less market volatility that has historically been overlooked and underestimated: Canada.
In Canada, Technological Innovation and Entrepreneurial Potential Abound
Make no mistake, the Great White North is buzzing with technological innovation and entrepreneurial spirit. Toronto is now the third-largest technology hub in North America and home to more technology workers than Chicago, Los Angeles, Seattle and Washington, D.C., trailing only New York and Silicon Valley. Canadian-founded companies like Shopify, Constellation Software and Descartes Systems Group are all well-known IPO success stories, but the next generation of Canadian software companies show equal hunger and promise.
In 2022, Canadian startups raised $10 billion CAD from venture capitalists across 706 deals – the second-highest deal count and total deal value on record. Accounting for more than half of all deals, the information, communications and technology startup sector lead in the total amount of venture funding raised last year, with $6.2 billion CAD invested across 381 deals.
Venture capital momentum is testament to the ample technological and entrepreneurial talent in Canada, but even more impressive are the Canadian companies that did not raise funding in the early stages of building and scaling a business. Absorb Software, Apryse, and CRMFusion (acquired by Validity) are three admirable examples of Canadian-founded software companies that resisted taking on any external capital, instead bootstrapping their way to success and contributing meaningfully to the broader Canadian economy years before partnering with Silversmith.
Silversmith has a long and successful history of investing in Canadian growth companies
The Canadian Entrepreneur Ethos is a Winning Ingredient
Silversmith has had the privilege of partnering with several outstanding Canadian software companies over the past decade. We’ve always sought out profitable, growth-oriented companies providing tangible value to their customers, rather than investing in ideas that have yet to be executed. The businesses we partner with have great products serving customers in large markets, which allows us to support them in periods of dramatic growth. Above all, we look for tenacious founders and entrepreneurs who’ve bootstrapped their companies to scale in capital-efficient ways.
Canadian entrepreneurs are especially skilled at scaling responsibly because their ecosystem has been historically underfunded. They have been forced to learn how to do more with less and figure out the best ways to build, finance, and grow their businesses. The circumstances of their geography have resulted in innate pragmatism and dogged commitment to problem-solving and entrepreneurs who’ve bootstrapped their companies to scale in capital-efficient ways.
We’ve always found that pragmatic problem-solvers make for exceptional entrepreneurs. This is a breed of founder who has personally lived a problem, created a product to solve that problem, and in turn, addressed large market opportunities by automating manual processes with technology. They’ve funded their company early on with help from friends and family or occasionally by raising small venture rounds. They’re relentlessly focused on profitability so they can retain maximum ownership until they know they’ve hit the inflection point where building a massive, global company is possible, at which time they may begin to search for a strategic capital partner.
Just look at Mike Owens, founder and former CEO of Absorb Software. After a 24-year career in the Canadian Armed Forces, Mike began creating educational content for corporate employee development programs. Mike taught himself how to code and founded Absorb Software from his child’s bedroom after recognizing the opportunity to make antiquated, tedious learning management more accessible and impactful. In less than four years, the company more than tripled its ARR from $17 million to $50+ million, grew its customer base to 1,400 customers across 34 countries, successfully integrated four accretive acquisitions, and emerged as a category leader in the corporate learning management system sector. In May 2021, Welsh, Carson, Anderson & Stowe (WCAS) acquired a majority stake in Absorb Software. We are thrilled to now have Mike continue to be part of the Silversmith family as a Senior Advisor to help us identify and support founder-led software businesses in Canada.
A Diverse, Highly Educated Workforce Gives Canada a Talent Advantage
Canada is an attractive area for investment given the region’s access to some of the best technical talent in the world. Finding and retaining top technical talent is one of the biggest challenges companies face when attempting to scale, but with some of the world’s best schools – including the University of Waterloo, the University of Toronto, the University of British Columbia, the University of Alberta, McGill, among others – the country has a unique advantage when it comes to starting and growing companies: a highly educated and comparatively untapped workforce. In fact, research indicates that Canada is the most educated workforce in the world, with nearly 62% of Canadians between the ages of 25 and 64 having completed the highest level of education for their age group.
What’s more, as U.S. immigration has slowed and become much more difficult, Canada has taken a different approach, offering a variety of clear pathways to bring skilled technology workers into the country. Looking at Toronto, which estimates that nearly 50% of its residents were born outside the country, it’s easy to see how the country’s talent advantage has driven non-Canadian companies like Amazon, Apple, Google and Microsoft to open sizeable offices in the region. Canada’s talent advantage has also created an active acquisition pipeline for companies looking to expand their global footprints, including many companies within our own portfolio, such as Absorb Software, Appfire, Digital Map Products, impact.com, Nordic and TMA Systems.
Canada is Well-Positioned to Create Enduring Value
Investors and industry-leading, American companies are waking up to the incredible potential Canada and its workforce have to offer. After investing $250+ million in Canadian software companies through direct and add-on investments over the past several years, we’re thrilled to see our northern neighbors finally receive the attention they deserve. This is a market that has long been overlooked, underestimated and underfunded, yet it’s filled with diverse domain experts who are committed problem-solvers, can easily recruit world-class talent, and have proven track records of building category-defining companies in an efficient and profitable way.
Bono and Barack Obama both once said, “The world needs more Canada,” and we couldn’t agree more. Canada is an ecosystem well-positioned to create much-needed, enduring value for founders, employees and investors alike. We’ve witnessed this firsthand across our own portfolio and look forward to continuing to expand our investment footprint in this undeniably exciting and promising region.