Second straight year angel investors dominate funding for emerging
technology companies: PwC
TORONTO, May 11 /CNW/ - A report on emerging technology companies
released today by PwC shows that for the second straight year, angel
investors have taken over as the primary funding source for these
companies, with venture capitalist fundraising at a 16-year low. Angels
typically invest their own funds, unlike venture capitalists, who
manage the pooled money of others in a professionally-managed fund.
Overall, 53% of respondents to its survey who raised money last year
received their funding from angels, compared to 8% who received funding
from venture capitalists. This presents a challenge that limits
Canadian technology businesses from competing in the global market, the
"Fundraising trends are an important predictor of innovation and growth
in this sector," says Peter Matutat, Partner and National Emerging
Company Practice Leader at PwC. "Our report shows that companies who
successfully raised capital in 2010 were 3.5 times more likely to adopt
an aggressive approach to business reinvestment compared to businesses
that were unsuccessful. One of the problems in our market is that
Canadian companies receive only 39% of the dollars that go to their US
competitors ($3.2 million vs. $8.2 million on average in 2010)."
The 50-page report polled over 160 CEOs of emerging Canadian software
companies on a variety of topics including growth, marketing, raising
capital, research, talent recruitment and mergers. Overall, revenues in
this sector are increasing and forecasts are back at pre-recession
levels. Overall revenue growth was approximately 32% in 2010, just
slightly behind the survey's historic average of 35%.
Other findings from the report include:
Over 60% of CEOs expect revenues to increase at least 25% in 2011
73% expect their companies will be acquired in the next 5 years
84% are using cloud computing in some form
More than 80% are taking a more aggressive approach to business planning
"One of the more dramatic surprises from our report this year is the
extent to which the war for talent is heating up - 44% list recruiting
as their biggest talent management issue. This is the first time in
eight years that access to human resources has emerged as a significant
challenge," says Matutat. "The report shows that while turnover is low,
the availability of new staff is an issue and the supply of new
software developers and management talent is no longer keeping up with
demand. As the economy continues to improve, and the workforce ages,
this will only continue to be a significant problem for CEOs," he says.
Less acquisitions but more exits on the way
According to the report, fewer respondents are actively pursuing
acquisitions as an avenue for growth this year, compared to 2009. One
reason for the trend: the economy is improving, and businesses may
think there are fewer opportunistic deals available in the market. This
is coupled with the fact that emerging software companies found it
difficult to access acquisition financing.
Of those who are planning an M&A exit, approximately 25% expect to do so
within two years and a further 50% within four years. The report notes
that there were 30 Canadian venture-backed M&A exits in 2010, compared
to a single IPO. This mirrors the 2009 results of 24 M&A exits and
another lone IPO. After an uptick in M&A activity in 2010, deal volumes
and valuations are persisting well into 2011 with many companies
exiting at healthy multiples. The first quarter of 2011 showed a
significant increase in overall deal value and transaction volume
compared to the first quarter of 2010.
More companies are using non-traditional marketing avenues such as
online media, search engines and social media (54%), jumping on this
increasingly necessary bandwagon to interact with customers, the report
says. LinkedIn (61%), Twitter (57%) and blogs (50%) are the top choices
for CEOs when it comes to social media. The adoption of social media is
allowing smaller companies to more easily compete in the same arena as
some of the bigger players through creating relationships and engaging
The report says that Canadian software companies continue to be focused
almost exclusively on the North American market with 89% of 2010
revenues from Canada and the US, the same level as 2009. CEOs also
continue to rely heavily on direct sales channels with over 80% of 2010
sales coming from direct sales.
For more information and to read the full report, please visit http://www.pwc.com/ca/cv2r. The report is also available from the media contacts
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For further information:
David Rowney, PwC
Tel: 416 365 8858
Jessica Draker, PwC