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Business Enterprises & VC Activity in Canada (2016-2020)

The information in this paper was compiled to provide an economic context for my PhD dissertation – particularly a focus on a segment of high-growth firms which may be candidates for VC investment. It contains summary information about Canadian business enterprises (e.g. numbers, size, growth, transitions, and related employment) and venture capital activity.

Key observations include:

Small businesses account for 98% of all business entities in Canada and 69% of employment; but, average employment growth rates and employee productivity are lowest in this segment; VC activity is concentrated in this segment;

Medium-sized businesses account for only 2% of the number of enterprises but 20% of national employment; its rate of contribution to employment growth is more than double the SB segment and employee productivity is 15% higher;

While large businesses represent only 0.2% of the number of enterprises, the segment employs almost 12% of Canada’s working population and generates more (+9%) absolute employment growth than the SB segment; additionally, employee productivity is more than 6x that of the average MB and 7x that of the average SB.

Policy-makers are generally interested in employment growth, but most owners and investors maintain a focus on revenues as significantly scaling revenues usually leads to increases in profits and enterprise valuation. In the studies examined herein, a scale-up refers to an enterprise’s upward transition to the next higher business size category as defined above and is based on employment.

“Firms that achieve high growth in a short period of time tend to make a large contribution in terms of employment and wealth creation” (ISED Canada, 2020: 23); a study by ISED Canada (Rivard, 2017: 8) indicated high-growth firms ('HGFs') contributed 41% of the total net employment change between 2009-2012. Estimating the number of HGFs depends on the growth measure used; based on Statistics Canada’s Survey on Financing and Growth of Small and Medium Enterprises, 2017 (ISED Canada, 2020), the number of HGFs represented about 3.2% of enterprises with more than 10 employees based on employment growth or 5.5% based on revenue growth. These 5.5% of business enterprises account for over 40% of net employment growth and so are obvious targets for policy support (both in terms of failure risk mitigation and transitioning/scaling up). Furthermore, VC investees and some investment candidates are most likely to be included in this HGF category.

For correlated information on VC investment activity in Canada, please refer to the full article.

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