Canada ranks last among OECD countries in the number of private billion-dollar companies—or unicorns—it produces per US$100 million invested, according to a new report. The country is so far behind its peers that it would rank last even if it produced four times as many unicorns. 

The report, released Wednesday by the University of Toronto’s Impact Centre, shows that Canada attracts more venture capital dollars than any OECD country save the United States, and trails only the U.S. and Israel when assessing venture capital investments as a percentage of GDP. Despite that high level of funding, however, Canada currently has just one private company valued at US$1 billion or more.

The research challenges claims that Canadian firms lack access to capital—particularly early-stage foreign investment—and that limited funding is preventing them from achieving high valuations.

“There are a lot of people walking around with the perception that there isn’t enough venture capital,” said Charles Plant, the report’s author, in an interview with The Logic. “I think that’s creating policy responses in government to attempt to add more venture capital, but it’s not getting at underlying issues.”

In a bid to boost deals and help companies grow, the federal government has injected hundreds of millions of venture capital dollars into the economy. Since 2017, it has committed $450 million through its Venture Capital Catalyst Initiative, and its Strategic Innovation Fund—created in 2017 to support business investment in Canada—has contributed close to $2 billion across 64 projects. 

Plant suggests these programs have done little to address Canada’s scaling problem. They’re driven in part by a narrative that companies don’t attract enough venture investments, he said, particularly at the early stages and from foreign investors. For instance, a report from the Economic Strategy Tables, created to advise government on how to support growth in Canada’s tech sector, references a venture capital “supply gap” and suggests the government co-invest in private funding deals to close it. Another report from the group suggests that “limited access to capital leads many Canadian firms to exit the market through mergers or acquisitions rather than accrue value domestically.”

The Impact Centre’s findings, however, challenge those beliefs.

The report—part of the Narwhal Project, which researches the challenges Canada faces in scaling companies—examines Series A venture capital deals in the country and breaks them down based on the dollars invested by Canadian, U.S. and other international funders. 

Looking at 257 rounds invested in 76 Canadian companies in 2018, Plant found foreign firms invested in more early-stage deals than Canadian firms—122 internationally funded deals versus 100 Canadian—and that companies with foreign-only venture funding received 2.7 times more capital, on average, than companies that raised money from Canadian funds. 

International venture funds were also more likely than Canadian investors to fund Canadian companies that the Impact Centre identified as most likely to become unicorns. While foreign firms invested in 97 such rounds, Canadian firms participated in just 67. 

To determine that capital’s effectiveness in scaling companies, Plant examined the number of billion-dollar firms created for every US$100 million of venture capital in the country annually, and compared the results to the 12 other OECD countries with at least US$250 million in annual venture funding. Despite the substantial funding flowing to Canadian companies, the country has but one unicorn: Kitchener, Ont.-based Kik Interactive. “We are so dead last that even if we had four times as many [unicorns], we would still be dead last,” said Plant. 

“There are some [countries] that I couldn’t even put on the chart—like Estonia and Malta and Luxembourg and Colombia—that don’t have US$100 million dollars of venture capital funding per year, or even close to it, and yet they’re creating unicorns,” Plant told The Logic.

Since Impact Centre finished the report, Kik announced it was shutting down its messaging app—which had been its core product—reducing its workforce to 19 employees amid ongoing legal challenges and shifting focus to its cryptocurrency business, Kin. “I can’t see any justification for their $1-billion valuation,” said Plant. “That means Canada probably has no unicorns now.”

The disconnect between funding dollars and high-value companies in Canada could be a symptom of spreading investments too thin, Plant noted. For example, while the U.S. has 13 times more venture capital firms than Canada, those firms collectively invest about 27 times more money. 

“Investors in Canada need larger funds, so they can put more money into individual investments while still spreading the risk into the same number of companies,” said Plant. 

Asked how companies should interpret his findings, Plant suggests they focus their fundraising on foreign investors. And government, he said, should evaluate whether its venture capital spending and support programs are needed at all. “If [government] continues to want to invest, then it should be doubling down on the bigger [venture capital] firms … and building up much, much larger funds so they can allocate more dollars per investment and spur growth faster.”