How do Canadian VC hubs compare to other global VC ecosystems?
13-minute read
Canada’s venture capital (VC) market has seen significant progress in the last decade. The number and value of investments have increased substantially over that period, investment funds have also grown in size and numbers, and successful exits have also increased.
We can confidently say that Canada’s VC ecosystem has evolved. But how do the cities or VC hubs that make up our national market compare to their peers around the world?
A new report by PitchBook, a VC and private equity data and market research provider can help answer these questions. Released in October 2023, Global VC Ecosystem Rankings uses PitchBook data to rank the global cities which are VC hubs according to their:
- development score
- growth score
- overall market ecosystem score
The overall market ecosystem score combines the development (70% of total weight) and the growth (30% of total weight) scores to provide a comprehensive score for each city.
The full PitchBook methodology can be seen at the end of this blog.
We reached out to PitchBook to obtain the latest data behind the rankings to analyse the scores of Canadian cities and compare them to their international peers. The aim of the analysis is to see where Canada stands on a global map as well as identify the gaps and opportunities for us to evolve as an ecosystem.
The report concludes that San Francisco is the leading VC hub in the world, followed by New York, Tokyo, Los Angeles and Boston.
How do Canadian cities rank in the Global VC Ecosystem Rankings?
First, the bad news: No Canadian cities made it to the top 10 of global ecosystems for the market ecosystem rank. Canada’s most advanced VC hub, according to this ranking, is Toronto—ranked 30th in the world.
Now the good news: Four Canadian cities are in the top 104 hubs. Apart from Toronto, Montreal (50), Calgary (59) and Vancouver (72) all made it to the list.
Vancouver and Montreal both made it into the top 50 rank in terms of their development score (ranking 39 and 48, respectively).
There is also very good news for Calgary, which ranked 7th in the world based on its growth score. The city has been attracting sizeable investments in clean technology, including recent investments by the Canada Growth Fund in Eavor Technologies Inc. and Entropy Inc. At the provincial level, Alberta provides an attractive market for investors who are looking to capitalize on the intellectual property generated by well-funded university labs in the region.
Toronto ranked better than other Canadian cities because of its size in terms of deal value, deal count and exits. The next-best-performing city is Montreal. It has about half as many deals as Toronto, while it lags even further in exits. Vancouver is comparatively better than Montreal when it comes to exits, almost at par with Toronto.
Figure 1: Canadian cities' VC ecosystem ranking according to PitchBook
| Location | Development Rank (70%) | Growth Rank (30%) | Market Ecosystem Rank |
|---|---|---|---|
| Toronto | 28 | 48 | 30 |
| Montreal | 48 | 62 | 50 |
| Calgary | 91 | 7 | 59 |
| Vancouver | 39 | 104 | 72 |
Source: PitchBook
Canada has one of the highest number of VC hubs in the world
When it comes to presence of VC hubs—Canada is much more diversified than most countries in the world. In fact, after the U.S., China and India, Canada has the most VC hubs alongside Germany and the United Kingdom. This gives Canada an advantage to grow the ecosystem leveraging the strengths of each of the hubs.
Figure 2: Number of VC hubs across countries
| Country | City count | |
|---|---|---|
| United States | 35 | |
| China | 11 | |
| India | 8 | |
| Canada | 4 | |
| Germany | 4 | |
| United Kingdom | 4 | |
| South Korea | 3 | |
| Australia | 2 | |
| France | 2 | |
| Israel | 2 | |
| Japan | 2 | |
| Netherlands | 2 | |
| Spain | 2 | |
| Sweden | 2 |
Source: PitchBook
How far are Canadian cities from the top 10 VC cities?
We wanted to understand where Canadian cities diverge from the top 10 VC ecosystems in the world. To do this, we calculated the difference between each Canadian city and the average score of the top 10 cities on all three aspects (Figure 2).
In terms of growth, Toronto slightly exceeded the average scores of the top 10 cities in the world. While Calgary ranks among the top 10 in the world with a growth ranking of 7.
Vancouver and Montreal have to improve by about 45-50% to make it to the top 10 in terms of the development score. Calgary is significantly lagging. While Toronto lags by 36% from the top 10 VC hubs based on development.
In terms of making it to the top 10 on a blended market development score—Toronto is closest to the goal, while other Canadian cities still have a long way to go.
Figure 3: Deviation from the average of the top 10 cities scores
Source: PitchBook
3 of the 4 Canadian cities fall in the emerging ecosystem category
Based on the development and growth scores, PitchBook mapped the cities into four major ecosystem categories.
Figure 4: The 4 VC ecosystem categories
| Ecosystem category | City examples | Description |
|---|---|---|
| Market leaders | San Francisco, New York, Beijing, Shanghai. | Top markets with high development scores. Because of their scale, the hubs in this category have muted growth scores. |
| Established | London, Seoul, Los Angeles, Boston, Tokyo | Markets that have good development scores and better growth scores than the market leaders. |
| Emerging | Toronto, Montreal, Vancouver, Miami, Paris, Berlin, Washington | Markets that have lower development scores but moderate to higher growth scores. Emerging hubs have a better chance to grow into established ecosystems if they continue the pace of growth. |
| Frontier | Calgary, Dubai, Houston, Manchester, Prague, Osaka. | Markets with the lowest development scores but high growth scores. |
Canadian cities did not fare particularly well in this analysis. Toronto, Montreal, Vancouver fall in the emerging market category, while Calgary ranked as a frontier ecosystem.
Toronto would need to scale more companies into unicorns for it to move to the market leader category. Vancouver and Montreal are witnessing stagnation, suggested by their unimpressive growth ranks. Calgary is growing exceptionally well with the support of various ecosystem enablers like Platform Calgary and Innovate Calgary. Due to its more affordable cost of living, Calgary is an appealing destination and has therefore seen an uptick in talent migration.
Figure 5: Mapping Canadian cities according to their VC development and growth score
Source: PitchBook
Canada’s VC ecosystems have a potential to become established
It is clear, looking at this data, that Canadian cities still have substantial room to improve when compared to global VC market leaders. Nevertheless, with four cities in the top 104 global VC ecosystems, we can also conclude that Canada has managed to carve out a role for itself as an important global player in bringing innovative companies to market. Considering three Canadian cities are classified as being in the Emerging market category, it would be safe to conclude Canada as a whole has the potential to transition to become an established ecosystem.
Breaking down the scores suggests Canada lags most on development indicators like the number of unicorns generated, a lack of mega exits and a very low exits-to-deal ratio.
This aligns well with a similar analysis we had completed in 2020 which concluded that Canada was a strong creator of smaller exits. At the time, we advised Canadian VC-backed companies to think globally from day one.
This new analysis allows us to identify other areas for improvement.
Toronto, for instance, would have a much better chance of making it to the top 10 global VC ecosystems if it could improve its growth score by focusing on company creation.
Meanwhile, Montreal needs more meaningful exits on top of its existing investment numbers. Vancouver has the opposite problem and needs more investment to improve scalability if it wants to improve its global ranking.
We look forward to working with other partners to continue growing the VC ecosystems in cities all across Canada. Through collaboration, we can help innovative companies reach their full potential.
PitchBook methodology for the Global VC Ecosystem Rankings
PitchBook derived VC market ecosystem scores to provide a numerical value on the relative maturity, growth, and size in specific cities across the globe. With a baseline of markets with at least 50 VC deals, 20 VC exits and five VC funds over the last six years (2018-2024). Next, they established the three main categories for comparison:
Size score - (Q1 2018 – Q1 2024) (35% final weight)
- Total VC deal value over the last 5 years (16.7% size weight)
- Total VC deal count over the last 5 years (25% size weight)
- Total VC exit value over the last 5 years (16.7% size weight)
- Total VC exit count over the last 5 years (25% size weight)
- Total VC fund value over the last 5 years (8.3% size weight)
- Total VC fund count over the last 5 years (8.3% size weight)
Maturity score (35% final weight)
- VC mega exit count (18.75% maturity weight)
- Unicorn count (18.75% maturity weight)
- VC late-stage ratio (12.5% maturity weight)
- VC first financing count (12.5% maturity weight)
- VC non-traditional % (12.5% maturity weight)
- Exit to deal value ratio (12.5% maturity weight)
- VC late-stage median pre-value (6.25% maturity weight)
- VC late-stage median raised (6.25% maturity weight)
Growth score (30% final weight)
- Short-term momentum measures the 1-year growth rate
- medium-term momentum measures the 3-year growth
- Longer-term momentum measures the 5-year growth
- Aggregated momentum measures a rolling 2-year aggregated growth rate
- VC deal value (16.7% growth weight)
- VC deal count (25% growth weight)
- VC exit value (16.7% growth weight)
- VC exit count (25% growth weight)
- VC fund value (8.3% growth weight)
- VC fund count (8.3% growth weight)
Each of these individual metrics are used to score each market via z-scores, rescaled from 1-100. The overall scores are then calculated using the weights above. This provides a metric that is relative to the other markets included in the analysis.