Venture Capital - Deep Dive

The annual VC funding per capita in Nova Scotia fell just above 2016 levels in 2018, however this is still one of the strongest annual performances on record. This decrease in VC funding experienced by Nova Scotia was not reflected in the Canadian national data, which resulted in the largest gap between Nova Scotia and Canada’s VC funding per capita since 2014.

Venture Capital research firm CB Insights shows the year-over-year (YoY) growth in the number of deals over the last five years was 25.01% in Nova Scotia, compared to only 17.24% in Canada overall. However, the YoY growth in funding was 4.04% for Nova Scotia, and 11.85% for Canada.

While most VC growth has occurred in Halifax, recent years have also seen progress in other regions of the province. Strong growth in the number of VC backed investments is a powerful indicator of the strength of the local entrepreneurial ecosystem. High growth firms flourish in distinctive types of supportive entrepreneurial ecosystems with specific supports most often found in central hubs. This is promising for the continued growth of VC deals in the province, because it indicates a strong hub in Halifax, but also connections and benefits throughout the rest of the province.

Currently, most VC backed funding in Nova Scotia takes place at the ‘Seed/Angel Stage’ , with little funding occurring in subsequent (early, formative, and later) stages. While this provides funding for start-ups to initially get off the ground, the lack of funding at later stages may prevent further growth, where greater employment opportunities may arise.

In the last 5 years, 78 per cent of all Nova Scotia’s VC deals were at the seed stage, compared to 60 per cent for Canada, and 46 per cent for the United States.

*In the context of private equity, 'seed stage' refers to the state of a company when it has just been incorporated and its founders are developing their product or service. (NSDAQ)

VC deals in Nova Scotia also tend to be smaller than those in the rest of Canada and the United States. The median for seed stage investments in Nova Scotia was $670,000 (USD) for the five-year period from 2014-2018. Whereas over the same period, the median for seed stage investments in Canada was $1.21 million (USD) and $1.85 million in the United States.

Nova Scotia is progressing on this measure and but based on a slight decrease from 2017-2018 may not be on track to achieve the goal of matching or surpassing the Canadian three-year VC investment average. These indicators also speak to the maturity of Nova Scotia’s up-and-coming startup ecosystem. They are important to monitor because they are related to the sustainability of current growth. If that growth is to continue, it will be important to increase the level of maturity of investment deals by type, the median size of investments, and the geographic distribution of VC activity.

CHANGES TO THE INDICATOR, BASELINE, OR TARGET:

• Due to a break in the data series, data from Canadian Venture Capital and Private Equity Association (CVCA) used for this measure are now only available starting in 2013. As VC funding is volatile, we wanted to maintain a multi-year average. However, a five-year average was too long to establish a baseline given this new, shorter time-series. Thus, the indicator was changed from a five-year average to a three-year average.
• The baseline was adjusted to the three-year average from 2013 to 2015. The current actual is the latest available three-year average from 2016-2018.
• This indicator aims to measure the gap between the Nova Scotian and Canadian per capita levels of funding.