Toronto’s entrepreneurs: A look at funding and revenue
Last November, we shared some insights on Toronto’s entrepreneurs based on the results of the annual MaRS venture survey. While that blog post provided a quick snapshot of the city’s entrepreneurs, many of you were curious to learn more about what the data was telling us and what it means for the innovators in Toronto and the organizations that support them.
This time, Data Catalyst decided to look at the money. By analyzing and visualizing some of the data around funding and revenue, we were able to pull out a few patterns and ask a lot of questions around how money moves in the Toronto startup ecosystem. As always, the survey results aren’t all-encompassing, but with 597 companies reporting, it’s a valuable dataset that allows us to identify some trends around financing and growth in the city.
What sectors are bringing in money?
For an early-stage company, two key factors are vital to sustainability: the amount of funding that can be raised, and the amount of revenue brought in. While the ideal situation is a mix of both, the reality is that the mix of money can be quite different depending on the sector and stage of development.
This reality is reflected in the MaRS survey results. In them, we see that ventures in the health sector are most dependent on funding across all sectors, with 32% of respondents operating on funding and not revenue. Conversely, startups in the information and communications technology (ICT) sector are more likely to operate on revenue than those in other sectors; revenue is also the primary source of income within that sector, with 24% of respondents claiming it as their sole source of money.
Startups in the cleantech sector appear to have the most equitable mix of funding and revenue, with 47% of ventures in the sector showing some kind of revenue. Cleantech also has a higher proportion of companies with revenue than those in ICT and health.
What does that mean when it comes to jobs? Does a higher proportion of startups creating revenue mean that payrolls will be higher? The data shows a small correlation, though it is premature to imply any causation. Cleantech companies in the survey are the most likely to have payrolls of $1 million or more across all sectors, while ICT ventures are most likely to have the smallest payrolls.
What kinds of startups get funded?
Raising funds is an important part of the early success of many startups and is dependent on a variety of factors, including access to a large network of potential investors. This issue of access is an important consideration when we look at the breakdown of what kinds of ventures most successfully attract funding.
Data from the MaRS survey indicates companies in Toronto with strictly foreign-born founders are less likely to be funded, particularly at high levels, than ventures that do not have any foreign-born founders.
With a large amount of diversity in Toronto, what could be causing this kind of discrepancy in funding? What factors are in play when it comes to access to funding, and how does that reflect the city’s multicultural context?
We find similar discrepancies when it comes to funding by gender. While the revenue numbers are relatively equal by gender, the funding data shows that, especially at the higher levels ($500,000 or more), male founders raise significantly more funding by proportion than female founders.
When it comes to founder origin and gender, these differences raise difficult questions: do we have issues with access to funding in Toronto? Does the demographic makeup of our venture capital community play a role in this discrepancy?
Who is making money and creating jobs?
Entrepreneurs in Toronto are often reminded that starting a business is a “marathon and not a sprint,” but what kinds of data do we have to prove that paradigm? Using data from all the respondents who reported revenue in the MaRS venture survey, Data Catalyst looked at how the age of a company affects revenue and payroll, and the results are unsurprising.
The immediate take-away is that startups shouldn’t expect to have massive revenue or payroll in their first five years. This fact echoes the sentiment that the startup ecosystem is a long-term play: organizations supporting startups need to do so over the long term, and will, on the average, see payoff in their investment—in terms of revenue and job growth—over years, not months.
What does it all mean?
Toronto’s startups have a diversity of funding and revenue models, but the data shows that there are still a lot of questions to be asked and gaps to be addressed. The city’s innovation support structure needs to adapt to meet the changing needs of the rapidly growing and maturing entrepreneur community, and Data Catalyst is going to keep examining the datasets—like the MaRS survey—that can help guide that evolution.
For more information on the makeup of Toronto’s startups, check out our earlier blog post looking at the MaRS survey data. We’re going to follow this post with more information around clustering and segmentation within the entrepreneurial ecosystem, but in the meantime, please let us know what you think. We look forward to your feedback and insights.