Plunging loonie could be boon for startups seeking venture capital

Industry watchers say the tumbling loonie is a blessing in disguise when it comes to Canadian startups and the innovation economy as U.S. venture capitalists look to make their investments go further.

TORONTO — Industry watchers say the tumbling loonie is a blessing in disguise when it comes to Canadian startups and the innovation economy as U.S. venture capitalists look to make their investments go further.

As the resource boom that helped fuel Canadian growth over the past decade continues to go bust, Canada’s commodity-sensitive currency has lost nearly 40 per cent of its value and now trades at near 13-year lows.

While that spells trouble for snowbirds looking to travel abroad and for shoppers facing higher prices on imported goods, it presents an opportunity for foreign investors, says Steve McCartney, vice-president at Communitech, a Waterloo, Ont., startup incubator.

“In terms of the dollar, Canadian companies would look like they would be an excellent value for them at this point,” he said.

The cheap loonie is also an advantage for startups when they’re making their pitch, he said, because many of them take in revenue in American dollars but pay operating costs in Canadian currency.

And for young companies looking to compete with established players, the low loonie allows them to compete more aggressively on price, he added.

John Somorjai, who heads the venture capital arm of Salesforce, an American cloud computing and customer management company, said his company has seen great results from its Canadian investments, including video marketer Vidyard.

And while the exchange rate is one factor, what’s most important is the level of talent being produced by Canadian universities and the quality of the ideas being pursued by entrepreneurs, he said.

“We’ve made great investments and we’d love to do more in Canada,” he said.

Somorjai said Canadian startups tend to look to the United States for growth capital when they’re already doing business and looking to scale up their revenues and customer base.

American venture capitalists have helped fund some of Canada’s biggest recent tech success stories, including Hootsuite, which has raised more than US$240 million as well as Kik, which has raised US$120 million, and Shopify (TSX:SH), which raised more than US$110 million before going public last year.

Paul Salvini, who heads the Accelerator Centre in Waterloo, Ont., said $1 million is the level of funding at which most startups look to the American venture capital ecosystem.

One of the big issues for companies at that stage is getting noticed in a crowded marketplace, Salvini said.

Many venture capitalists do not range far from their home base in Silicon Valley and the area surrounding San Francisco, he said.

“The lower dollar might give them a reason to want to come and take a look,” Salvini said.

Beyond attracting American investors, the loonie’s fall against the greenback is a chance to focus Canadians on startups and the innovation economy and away from more cyclical industries, he added.

“We have to look at what our response is to the low dollar as the world moves towards a knowledge economy and an innovation economy,” Salvini said.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Red Deer city council gave initial approval for more mixed-use developments in Riverside Light Industrial Park. (File photo by Advocate staff)
More industrial landowners in Red Deer are pursuing mixed-use zoning

A third of Riverside Light could become a commercial/industrial district

Central Alberta man facing second-degree murder in connection with December death.
Advocate file photo
Central Alberta man facing second-degree murder in connection with December death

Maskwacis RCMP said female found dead in Ermineskin Cree Nation residence last December

Red Deer College has been working towards obtaining university status for a couple of years. (File photo by Advocate staff)
Red Deer College can offer degrees without becoming a university: Alberta government

Red Deer College should be worried that its university dreams could be… Continue reading

The Mountain Cree Traditional Band headquarters in Mirror, Alta. has been the target of theft and vandalism. (Photo submitted)
Vandals strike: Artifacts worth $1M gone from central Alberta museum

AWNTB says not enough been done to deter crime in Mirror, Alta.

Alberta's chief medical officer of health Dr. Deena Hinshaw said there are 739 people in hospital across Alberta, including 120 in ICU. (photography by Chris Schwarz/Government of Alberta)
Updated: Eleven more Albertans die from COVID-19

There were 739 people in hospital, 120 in ICU on Monday

Justin Kripps of Summerland and his team have competed in Olympic action and World Cup competitions in bobsleigh. (Jason Ransom-Canadian Olympic Comittee).
QUIZ: Are you ready for some winter sports?

It’s cold outside, but there are plenty of recreation opportunities in the winter months

People evacuate from the West Front of the U.S. Capitol during a rehearsal the 59th Presidential Inauguration at the U.S. Capitol in Washington, Monday, Jan. 18, 2021. (AP Photo/Carolyn Kaster)
Inauguration rehearsal evacuated after fire in homeless camp

Inauguration rehearsal evacuated after fire in homeless camp

Honduran migrants show their route on a map of Mexico and Central America to reporters, as they sit near a police roadblock at a highway in Vado Hondo, Guatemala, Sunday, Jan. 17, 2021. Guatemalan police and soldiers used tear gas and wielded batons and shields against a group of Honduran migrants that tried to push through their roadblock. (AP Photo/Sandra Sebastian)
Guatemala troops, police break up caravan of weary migrants

Guatemala troops, police break up caravan of weary migrants

FIL - In this Nov. 7, 2020, file photo Vice President-elect Kamala Harris speaks in Wilmington, Del. Harris will make history Wednesday, Jan. 20, 2021, when she becomes the nation’s first Black, South Asian and female vice president. (AP Photo/Andrew Harnik, File)
Harris prepares for central role in Biden’s White House

Harris prepares for central role in Biden’s White House

Biden to propose 8-year citizenship path for immigrants

Biden to propose 8-year citizenship path for immigrants

FILE - In this Aug. 14, 2017, file photo, a comfort woman statue is placed on a chair of a bus to mark the 5th International Memorial Day for Comfort Women, in Seoul, South Korea. Japanese Foreign Minister Toshimitsu Motegi, in his diplomatic speech on Monday, Jan. 18, 2021 said a recent South Korean court ruling ordering Japan's government to pay compensation to 12 South Korean former “comfort women” over World War II-era sexual abuses by Japanese troops was "an abnormal development absolutely unthinkable under international law and bilateral relations.” (AP Photo/Ahn Young-Joon, File)
Japan urges South Korea to drop wartime compensation demands

Japan urges South Korea to drop wartime compensation demands

FILE - In this Jan. 12, 2021 photo provided by the Los Angeles County Department of Medical Examiner-Coroner, National Guard members assisting with processing COVID-19 deaths, placing them into temporary storage at the medical examiner-coroner's office in Los Angeles. The seven-day rolling average of daily deaths is rising in 30 states and the District of Columbia, and on Monday, Jan 18, 2021, the U.S. was approaching 398,000, according to data collected by Johns Hopkins University, by far the highest of any country in the world. (Los Angeles County Department of Medical Examiner-Coroner via AP, File)
Coronavirus deaths rising in 30 US states amid winter surge

Coronavirus deaths rising in 30 US states amid winter surge

Bloc Québécois Leader Yves-Francois Blanchet holds a press conference on Parliament Hill, in Ottawa on December 10, 2020. THE CANADIAN PRESS/Sean Kilpatrick
Blanchet’s choice to block critics on Twitter limits free speech: experts

Blanchet’s choice to block critics on Twitter limits free speech: experts

Conservative Leader Erin O'Toole holds a press conference on Parliament Hill, in Ottawa, on Dec. 10, 2020. THE CANADIAN PRESS/Sean Kilpatrick
Conservative policy convention may put O’Toole’s pledge of moderation to the test

Conservative policy convention may put O’Toole’s pledge of moderation to the test

Most Read