Canadian startups sold plenty of footwear, futons and flowers to shoppers at home and abroad during the pandemic, while retailers everywhere used software developed in this country to move their businesses online as COVID-19 swept the world. But the ecosystem still needs to produce more companies at scale, a new analysis from a leading sector investor suggests.

On Wednesday, Wittington Ventures director Qasim Mohammad published the fourth edition of a biennial study of Canadian digital commerce, identifying about 700 domestic firms that sell products and services to consumers, or that build the technology merchants use to do so. Those companies have collectively raised more than $15 billion over the last five years from 1,500 investors, in over 1,000 deals, he estimates. That’s up from 114 firms and $1.2 billion on Mohammad’s original February 2016 list.

Digital-commerce fundraising boomed as COVID-19 lockdowns kept shoppers indoors, he said. “There was this huge push in the retail industry to use any vendor possible to service customers, [given] the demand that there was at the peak of the pandemic for all things online.”

Winnipeg-based Bold Commerce, which makes apps for Shopify and other online-store platforms, raised $35 million in January 2021. Vancouver-headquartered Elastic Path, which mostly serves larger firms, took in $60 million in a BlackRock-led round in February.

Companies whose platforms provided insights into clients’ supply chains—particularly as containers piled up at ports—also did well. Toronto’s Tealbook raised US$50 million in December 2021, while Ottawa-headquartered Kinaxis is faring better than most other publicly traded Canadian tech stocks. To serve customers in a timely fashion, Mohammad noted, “you need to be able to see what is actually happening in your supply chain.” 

Fulfillment and logistics technology was another popular investor target, particularly firms that focused on last-mile delivery or moving specific types of products, like bulky items. Toronto-based GoBolt, which does both, raised $135 million across consecutive rounds in March and December 2021, from investors including Yaletown Partners and IKEA majority owner Ingka Group; the firm also expanded into the U.S. and rebranded twice during the pandemic. Toronto’s Swyft, whose technology connects retailers and couriers, raised a US$17.5-million Series A from Inovia Capital and Shopify in April 2021.

Investors may have overdone it on delivery, Mohammad said, noting there was “tons of money going towards getting a minute shaved off a small delivery time.” Ultra-fast delivery firms raised US$7.5 billion in 2021, but major international players like Philadelphia-based Gopuff and Berlin-headquartered Gorillas struggled over the summer. 

Canadian digital-commerce firms have not escaped the shift in market conditions and consumer behaviour since the pandemic-driven peak of online shopping. In the U.S.—where many companies on Mohammad’s map, or their clients, sell—e-commerce sales accounted for 14.5 per cent of all retail trade in the second quarter, down from 16.1 per cent the same period two years prior. 

Several companies have recently made significant layoffs, including Shopify; Swyft; Toronto-headquartered Clearco, which provides merchant financing; and Winnipeg-based SkipTheDishes, the food-delivery subsidiary of Just Eat Takeaway.com.

Direct-to-consumer (DTC) startups face additional challenges as the social media ads that many used to find buyers grow more expensive and less accurate—particularly after Apple limited apps’ ability to track users across iOS devices. “Dollar Shave Club and Casper were really good at the arbitrage of online advertising,” said Mohammad, noting that such early DTC entrants “grew really quickly and owned their respective product categories.” But that model no longer works so well. Wittington, which is tied to the Weston grocery dynasty, is looking at the future of advertising in a cookieless world.

While Canada’s digital-commerce ecosystem has grown significantly since Mohammad began mapping it six years ago, some of the same big names still dominate. “There’s a lot of startups, definitely,” he said. “But there’s not very many that are in [the] scaling stage, heading towards that ‘We can service the world’ potential.” Secondary raises at Ottawa-headquartered Shopify account for a sizable chunk of the sector’s fundraising in the period covered by his most recent study; while at OMERS Ventures, Mohammad worked on the team that managed the pension fund’s investment in Shopify ahead of its May 2015 IPO. 

Other high-profile players include Montreal-based Ssense, a luxury retailer that claimed a $5-billion valuation in June 2021 following an investment from Sequoia Capital. Smaller firms still need more access to capital and support from investors and larger companies, said Mohammed, who will present his ecosystem breakdown at the Elevate conference in Toronto on Wednesday. “There just needs to be more momentum behind this, so that we can get more Shopifys, more Ssenses.”