Canadian tech companies backed by government funds are growing at a slower rate on average than those that have received funding from private U.S. and Canadian investors, according to an analysis of nearly 900 scaling companies.

U.S. investment firms FJ Labs and Insight Partners have the best track record of backing scaling Canadian firms, the 2023 Narwhal List shows, with their high-growth Canadian portfolio firms growing faster than about 70 per cent of 15,000 North American benchmark companies.

Canadian investors Inovia Capital, National Bank of Canada and OMERS Ventures rounded out the top five with their high-growth Canadian firms scaling faster than at least two-thirds of the benchmark companies. 

Trailing the list—which includes 31 investors who have backed scaling Canadian firms—are Canadian government funds, including BDC Capital, Sustainable Development Technology Canada, the Government of Quebec and FedDev Ontario. 

“This is really a ranking of how good these organizations are at picking companies,” said the report’s author Charles Plant, a startup researcher and former senior fellow at the University of Toronto’s Impact Centre, where he had previously published the annual Narwhal List. “American investors are getting the better firms,” he said, “or they’re doing a better job of scaling them.”

The list includes private Canadian companies that have raised at least $10 million in capital. Plant determined their “scale-up score” using employee growth over the past two years and size based on total employee count available on LinkedIn, as well as their capital raised relative to their number of years in business. He then compared firms to a benchmark of 15,000 growing North American companies and ranked them on a scale of zero per cent to 100 per cent. 

Calgary-based Neo Financial topped the list of companies scaling the fastest in Canada, with a 100 per cent scaling score, followed by Montreal’s Nesto, another fintech firm and Toronto-based AI startup Cohere, each with 98 per cent. 

The report also identified 19 unicorns—private companies valued at more than $1 billion—up from just three in 2020. Topping the list is Vancouver-based NFT company Dapper Labs, followed by Montreal-based vacation-booking platform Hopper and Toronto-based password management company 1Password. 

Plant looked at who is funding these high-growth companies by identifying the top five investors in 2,356 funding rounds involving 886 scaling Canadian firms. Using data available on Crunchbase, a tech-company analytics platform, he found that foreign funds had the highest average scale-up ranking with 56 per cent, followed by private Canadian funds with 52 per cent and government funds with 46 per cent. 

“Foreign funds are either picking the best companies to invest in or providing them with better resources,” said Plant. Canadian government funds, meanwhile, are backing companies that can’t get foreign or private Canadian funding, he said. 

A large share of venture capital dollars in Canada flow from government, either through direct investments in companies from government-funded organizations like BDC Capital and SDTC, or through other VC firms in which those government funds invest. 

BDC Capital, a federal Crown corporation, was the most active VC investor in Canada last year, participating in 87 deals worth more than $2.3 billion total, according to the Canadian Venture Capital & Private Equity Association. The next most active investor by deal count was Investissement Québec—a provincial government fund—with 35 deals worth $631 million, followed by Export Development Canada which invested in 27 deals worth $785 million.  

BDC did not respond to The Logic’s request for comment by deadline. 

Plant said the sheer volume of deals in which government funds participate—including in early-stage firms—should not obscure the results, as the report only captures investments that meet the scaling criteria. However, firms that exclusively cut bigger cheques may have a higher scale-up score, he said, since they tend to have more access to later-stage deals. 

Still, some early-stage investors, like Garage Capital and Panache Ventures, show a high average scaling score despite focusing on smaller deals. That, said Plant, reflects their ability to make good bets on companies’ scaling potential. 

Patrick Lor, a partner at Panache, said the ranking doesn’t necessarily speak to investors’ success, however. It doesn’t consider how much money a VC invested in scaling companies, when, or on what terms—just that companies in its portfolio have gone on to grow relatively fast. “It’s binary,” said Lor. “It basically says, if you picked [a scaling company] somewhere along the way, then you get a higher score.” 

Still, Lor said he’s not surprised by the top 10 investors on the list, and said the ranking may be a useful qualitative tool for entrepreneurs seeking capital. “This group of people always seem to be hanging around the top ventures in Canada, the top entrepreneurs, and they know how to close, they know how to invest.”