Element AI, the Montreal artificial-intelligence firm, tops Canada’s annual Narwhal List of technology companies with the potential to reach $1 billion in value. This year’s list includes four mobile, two AI and one blockchain companies in the top 10.

The number of companies on track to reach $1 billion has nearly tripled in the past two years. There are 28 Canada-based tech firms with similar growth rates as unicorns in the U.S., according to the new report from the University of Toronto’s Impact Centre, released exclusively to The Logic. That number is up from 18 companies in 2017 and 10 companies in 2016.

This year’s list—which can be read in full below—includes three blockchain companies, the first time the burgeoning sector has been included.  

Vancouver-based technology platform Hootsuite is ranked second. As The Logic reported last August 2018 was a difficult year for the company after Facebook and Twitter limited access to the algorithms and APIs used by third-party platforms like Hootsuite.

Rounding out the top five are Ritual, mobile restaurant app; Wealthsimple, the Toronto-based fintech platform; and Kik, the Kitchener-Waterloo,Ont.-based messaging app.

“Element AI has a really big headstart,” said Charles Plant, an entrepreneur and lead author of the Narwhal List. “They were only founded in 2016, and that’s what us investors like: they like young, fast-moving companies.” Bloomberg reported in July 2018 that the artificial intelligence firm is planning another $250-million capital raise. The Series B financing could bring the company’s valuation to $1 billion.

Promising companies from last year’s list aren’t growing as quickly. North, which unveiled its new virtual-reality glasses at CES this month, is down to sixth spot from third last year; Lightspeed POS, which is gearing up for an IPO, took the seventh spot after placing second last year.

The 2019 Narwhal List is developed by the University of Toronto’s Impact Centre to keep track of Canadian companies with the potential to become unicorns.

“The ‘average’ Narwhal in 2018 is eight years old and has raised $105 million of funding since its inception (up dramatically from last year’s average of $66 million),” the report reads. “Most firms operate in the Internet software and services industry and are headquartered in Toronto.”

The report identifies Canada’s top 40 private tech firms and 10 private healthcare firms based on a measure called financial velocity—that is, the total amount of funding a firm has raised divided by the number of years it has existed. The metric is used as a proxy for growth rate at private companies, in the absence of publicly-available information on revenue growth. “There’s a high degree of correlation between the amount of capital a firm has and the revenue it has in any one technology sector,” said Plant.

According to the report, the average financial velocity of Canada’s top tech firms in 2018 was 12.9, up from 9.4 the year before. At the same time, the bar for making it on to the Narwhal List has been raised, due to the increased number of high-growth firms in Canada: companies now need a financial velocity of at least 6.7—compared to 4.7 in 2017—to make the ranking.

The report also includes a second ranking of 10 high-growth companies in the healthcare space. BlueRock Therapeutics topped the list for the second year in a row, with US$225 million in funding and nearly double the growth rate of any other firm.

However, Plant noted that BlueRock is an outlier in the health tech sector, which, unlike the rest of tech, is regressing on the path to creating unicorns. Financial velocity in the sector is down from 32.9 in 2016 to 21.7 in 2018.

“There’s a totally different dynamic in raising funds and valuations in healthcare,” said Plant. “It’s based on drug discovery, not on growth of the company. You don’t get the revenue gains until much much later.”

Companies in all sectors are concentrated in the Greater Toronto Area (GTA). There are 24 firms in the GTA, eight in Montreal, six in Vancouver, five in Kitchener-Waterloo and seven elsewhere across the country.

Despite the progress, Canadian companies are still falling short of attaining the elusive unicorn status.

The last company in Canada to reach US$1 billion in value was messaging app Kik Interactive in 2015, after it secured US$50 million from Chinese tech giant Tencent. Since then, there have been 19 U.S.-based companies that launched and became unicorns.

In total, Canada has just one unicorn, while the U.S. has 150.

Meanwhile, Canada isn’t just lagging behind the U.S. in creating billion-dollar companies; much smaller countries with less-established tech sectors are also outcompeting Canada for number of high-growth tech firms.

South Korea, for example, has five unicorns; Indonesia has four; Switzerland has three; and France, South Africa and Columbia each have two.  

Plant’s findings call into question Ottawa’s goal of creating 10 companies worth $1 billion in 10 years, a plan outlined in a 2016 document on Canada’s scale-up strategy, which The Logic first reported on in October 2018. Similarly, the Digital Industries Economic Strategy Table, chaired by Shopify CEO Tobi Lütke, published a list of recommendations in September 2018 for how Canada can create 13 new billion-dollar companies by 2025.  

Plant endorsed the goal. “We should have 10 unicorns on that list and we should be creating two a year, at least,” he said. But given Canada’s track-record, he’s skeptical of our ability to achieve it.

Plant pointed to the markets in which Canadian companies operate as one reason for our lagging competitiveness. “We tend not to enter the huge horizontal consumer markets; we tend to be more niche market oriented,” said Plant. “But the big opportunities in tech right now are consumer-horizontal and corporate-horizontal markets.”

Another reason Canada struggles to compete, he added, is simply because firms with high-growth potential aren’t getting enough funding—venture capital is spread thin among many, often small, companies in Canada, leaving fewer dollars for scaling ones.

The latest CB Insights report on VC spending in Canada shows that 222 deals were made involving seed- and early-stage companies in the third quarter of 2018, compared to just 46 deals in scaling companies and 35 deals in later-stage companies.

It’s a problem identified in the 2016 scale-up strategy, too. As a solution, the report recommends only funding companies that demonstrate potential for growth or sustainability. It also suggests cutting off companies that rely on government funding to stay afloat, and calls for private banks as well as BDC and EDC to become more liberal in providing debt financing for growing tech companies.

“We’re not growing as fast,” said Plant. “And when it comes time to raise late-stage capital, we’re not as attractive [to investors], so companies either have to get sold, which is usually what happens, or they go public and sort of limp along.”

Although Canadian firms are still nursing growing pains, conditions for scaling are slowly improving. “In the last 10 years, we’ve moved from there not being growth capital available— where really the only choice was to take an acquisition that was substandard—to the point now where we’re seeing almost a growth round a month of $10, $20, $50, $100 million,” said Iain Klugman, CEO of Communitech.

The Narwhal List notes the dearth of high-growth tech companies going public (there were no IPOs in 2019), but Klugman suggested that’s not necessarily a bad thing. “In the ‘90s, people would go public to raise $20 million,” he said. “Now with the availability of capital, it just gives people choices.”

The Impact Centre report also highlights that no companies on the list were sold in 2018, which Plant said is a good thing. “We need to create made in Canada, headquartered in Canada, R&D in Canada, and some of the sales and marketing in Canada companies,” he said. “That doesn’t happen when the companies are sold. Their growth in Canada stalls … and the benefit eventually accrues to another country. So we don’t end up creating a culture of high company growth. Every sale of a major company a tech company is a loss for the country.”

Klugman, meanwhile, doesn’t believe that all acquisitions are a loss. “It’s all situational. In a strong industry, you want to see a lot of startups, you want to see a bunch of companies getting onto a growth curve, you want to see companies going public, and you want to see people having big exits,” said Klugman, noting the lack of exits as a major criticism of Canada’s tech ecosystem. “We have a lot of talent and capital tied up in companies and, I would say, a lot in startups that should be liberated. Big acquisitions, as long as they’re really good acquisitions are a good thing,” he added. “It doesn’t mean we shouldn’t be taking companies to a billion dollars and more, but it’s about a mix.”

The Narwhal List 2019

Impact Centre, University of Toronto

Rank	Company	Founded	Total Funding ($US Millions)	Financial Velocity	Sector	City
1	Element AI	2016	105.7	35.2	Artificial Intelligence	Montreal
2	Hootsuite	2008	279.9	25.4	Internet	Vancouver
3	Ritual	2014	113.5	22.7	Mobile	Toronto
4	Wealthsimple	2014	113	22.6	Internet	Toronto
5	Kik	2009	220.5	22.1	Mobile	KW
6	North	2012	152.7	21.8	Consumer Product	KW
7	Lightspeed POS	2005	292	20.9	Mobile	Montreal
8	Blockstream	2014	101	20.2	Blockchain	Victoria
9	Integrate.ai	2017	38.2	19.1	Artificial Intelligence	Toronto
10	Hopper	2007	199.2	16.6	Mobile	Montreal
11	Breather	2012	113.7	16.2	Mobile	Montreal
12	League Inc.	2014	76.2	15.2	Internet	Toronto
13	CryptoKitties	2017	27	13.5	Blockchain	Vancouver
14	Kira Systems	2015	50	12.5	Internet	Toronto
15	Coveo	2005	169.8	12.1	Internet	Quebec
16	LeddarTech	2007	140.7	11.7	Electronics	Quebec
17	The Aion Network	2017	22	11	Blockchain	Toronto
18	ecobee	2007	131.3	10.9	Consumer Product	Toronto
19	Assent Compliance	2005	151.6	10.8	Internet	Ottawa
20	D-Wave Systems	1999	209.4	10.5	Computer Hardware	Vancouver
21	Visier	2010	91.5	10.2	Internet	Vancouver
22	TouchBistro	2010	90	10	Mobile	Toronto
23	Ranovus	2012	68.5	9.8	Computer Hardware	Ottawa
24	Happiify	2018	9.1	9.1	Artificial Intelligence	Toronto
25	Wattpad	2006	117.8	9.1	Internet	Toronto
26	Tulip Retail	2013	51.2	8.5	Mobile	Toronto
27	Hubba	2012	58.7	8.4	Internet	Toronto
28	D2L	1999	165	8.3	Internet	KW
29	Wave	2009	82.4	8.2	Internet	Toronto
30	eSentire	2001	140.9	7.8	Computer Hardware	KW
31	Vidyard	2011	60.7	7.6	Internet	KW
32	Rubikloud	2013	45.3	7.5	Internet	Toronto
33	Farmer’s Edge Laboratories	2005	103.6	7.4	Software	Winnipeg
34	Nuco	2016	21.6	7.2	Internet	Toronto
35	Bench	2012	49.1	7	Internet	Vancouver
36	Drop	2015	27.3	6.8	Mobile	Toronto
37	Analytics 4 Life	2012	47.5	6.8	Software	Toronto
38	MOJIO	2012	47.4	6.8	Mobile	Vancouver
39	SecureKey Technologies	2008	73.5	6.7	Internet	Toronto
40	Platterz	2016	20	6.7	Internet	Toronto