Which Canadian City has the Best FinTech Ecosystem?

As originally published on Betakit

Six months ago we published the second edition of FCP’s FinTech Map and received great feedback. We explored the strengths, weaknesses and opportunities within Canada’s FinTech ecosystem by highlighting the number of startups gaining consumer traction across verticals. See the September post below for more detail.

Within the feedback, one follow-up question came up time and time again. “Ok, we understand how Canada is faring across verticals, but what about across cities?” Or, “Where in Canada should you build your FinTech startup to maximize its chances of success?”

Obviously, one can have success anywhere, and we have seen FinTechs flourish across the country. However, we hear a lot of high-level comments like “Toronto has the best FinTech ecosystem in Canada” without there being much data to back up this claim. So we decided to crunch some numbers to test out if any of Canada’s major ecosystems have a significant advantage and, if so, to what degree. We analyzed 400+ FinTechs operating in Canada and the results are summarized in the two charts below.

Chart #1: The number of FinTechs by operating stage within each major Canadian ecosystem

In this analysis we tested whether any particular city breeds a higher amount of startups in the pre-launch stage, early stage, or most importantly, the expansion stage (see below on how we defined each of these operating stages). We believe that the number of FinTechs in the expansion stage is a good indicator of success for each ecosystem. We encircled in red the data that caught our attention.

A few takeaways:

  • It is not surprising that Toronto has the largest FinTech ecosystem in Canada with 185 startups, or 43% of all FinTechs. Montreal comes in second with 102 startups (24% of all FinTechs) and Vancouver in third with 65 startups (15% of all FinTechs).
  • Even though Toronto has almost double the amount of startups than Montreal, they each have the same number of startups in the Pre-launch phase. This can either imply that Montreal’s ecosystem is on the rise or that when Montreal companies get to a certain stage many of them end up moving their HQ to Toronto.
  • Impressively, Vancouver holds the largest proportion of startups in the expansion stage at 31%, which is 7 points above the national benchmark of 24%.

So, basically, if you want to launch your FinTech in the largest ecosystem in Canada, then Toronto is the winner. On the other hand, Vancouver may have a smaller community but is more effective in breeding high growth companies. Finally, Montreal seems to be a popular place to start your startup, even if you decide to move to another city in its later stages.

But what about if you are running a crypto startup? Or a lending startup? Is there a better ecosystem for one than the other? Well… we have data for that too!

Chart #2: How do HQ cities for Canadian FinTechs differ by vertical?

A few takeaways:

  • Although Montreal is the second largest ecosystem for Fintechs in Canada, it has the largest ecosystem for Cryptocurrency & Blockchain startups (with 38% of Cryptocurrency & Blockchain companies based there).
  • Montreal also has a relatively strong ecosystem for Compliance startups with 39% of them based there.
  • Vancouver and Toronto are clearly the strongest ecosystems for lending startups (48% and 24%, respectively).
  • If you are building a Personal Finance application, the ecosystem in Toronto is almost 3x  larger than anywhere else in Canada.

All in all, the data suggests that each ecosystem has its strengths, especially when dissecting them by vertical. What is most important is that local authorities recognize the relative strengths of each ecosystem and work together in ensuring that the next wave of financial services companies serving Canadians are home grown.

There are many more conclusions you can draw from the data above and if you would you like to discuss any of them with us, we encourage you to reach out to jshaanan@ferstcapital.com. All feedback is welcome!

By Jonathan Shaanan and Chantal van Westen

The State of Canadian FinTech in 4 Charts

As originally published on Betakit

Last year we released the first edition of FCP’s FinTech Map, plotting all FinTechs serving Canadians by vertical and growth stage. We received a lot of great feedback and were proud to see our work referenced by both investors and regulators.

Today, we are releasing an updated version along with some other telling charts on the overall state of FinTech in Canada. There is a lot of data packed into these charts (426 companies analyzed), so we encourage you to grab a cup of coffee and take your time as you go through them. We have included several of our own takeaways below each diagram but, with plenty of ways to slice the data, you will undoubtedly develop many of your own.

As a result of this exercise, we found two recurring themes worth highlighting. The first one is obvious to all of us tracking the space, while the second may be more subtle.

The more obvious theme is that the Cryptocurrency & Blockchain vertical has seen the most action in Canadian FinTech over the last 12 months. To put some data around this, we have seen 21 net new companies enter the space over the last year (net new refers to new companies minus dissolved ones). This is more than double the activity of the next two most active verticals, Lending and Insurance, which both saw 9 net new startups enter the space.

We have also tracked 7 net new Cryptocurrency & Blockchain startups entering the expansion stage, again leading the pack amongst all verticals. This indicates that companies are not only entering this vertical at a rapid pace, but they have been relatively successful in gaining traction. While several forces are at play here, the lack of regulation plays an important role: it tends to take these companies less time to get to market than other FinTechs given there are fewer regulatory hurdles to overcome. Likewise, it also seems to take these companies far less time to achieve international expansion than other FinTechs given the lack of regulatory hurdles away from home.

The second, less obvious, theme is how B2B (business-to-business) startups have  achieved a significantly higher success rate than B2C (business-to-consumer) startups. Even though B2B startups make up 54% of all Canadian FinTechs, they add up to 75% of all startups we tracked in the expansion stage. On the other hand, B2C companies make up 35% of all FinTechs but only 18% of all startups in the expansion stage. These are significant differences.

While all FinTechs face common challenges, including the difficulty of forming partnerships with incumbents and heavy customer acquisition costs, these challenges appear to be exacerbated when going direct to consumer. As a result, several of the FinTech-focused funds in this country tend to favour B2B companies, which now makes funding a bigger challenge for B2C companies. Investors will look at these numbers as validation for their B2B-focused strategies while B2C entrepreneurs will argue that they need more capital support to be successful. Is it the chicken or the egg?

Despite these results, at Ferst Capital we have maintained our focus on B2C FinTech. We believe with the right funding and the right network, B2C FinTechs can be very successful in this country as they have elsewhere. More so, our mission is to help improve financial services for Canadians and we believe that, when looking at FinTech on a global scale, the B2C companies like Revolut, Credit Karma, Lending Club, Wealthsimple and Mylo, are the ones that have made the most impact in advancing how consumers interact with their money. If we want home-grown companies to lead the next wave of financial services in Canada, both regulators and investors will need to play their part. Regulators will need to create a more inviting operating environment for these companies, for example, vis-a-vis Open Banking and FinTech charters. Investors will need to provide more active support and understand that, despite the added risk, based on the massive successes elsewhere in the world, the return will be worth it.

You can find the full infographic here. We look forward to hearing your thoughts!

Note: We work hard to be as accurate as possible and included in the analysis all FinTechs offering their services in Canada. However, as the space grows and evolves, it is possible we classified your company incorrectly, or we may have missed your company altogether. Either way, please contact  jshaanan@ferstcapital.com and, if all checks out, we will be sure to reflect the changes in the next edition of the infographic. Better data leads to better insights.

Created by: Jonathan Shaanan and Chantal van Westen

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FCP’s FinTech Map of Canada 2017

Around a month ago we released the first version of FCP’s FinTech Map of Canada, where we laid out the universe of FinTechs serving Canadians by vertical and operating stage. You can see the original article published on Betakit here.

We have since received a lot of positive feedback and are thrilled to see that some are using our map to guide their discussions on Canada’s FinTech ecosystem.

Not surprisingly, we have also received feedback from companies who thought they were either misplaced or were incorrectly left off the map altogether. We did not think we were going to get it 100% correct on the first go and are grateful to all those that have reached out. We took it upon ourselves to take in this feedback and release a slightly more accurate map which you can find below.

As we aim to update the map regularly, we believe that more accurate data leads to better insights and we encourage all those interested to continue providing feedback. That is, if you would like to either discuss, support or challenge some of the findings please reach out to jshaanan@ferstcapital.com. We would love to hear from you!

In the meantime, despite the updates, our overall insights have not changed from the original post. As a reminder, these were some of our conclusions:

  • The two verticals that have made the most progress in Canada are Payments and Lending, each with over one third of its startups operating in the expansion stage. It is not surprising that these two verticals are also the most crowded; each has 45+ startups looking to disrupt the space.
  • While Wealth Management and Personal Finance are two of the most popular verticals for entrepreneurs, very few startups have made it to the expansion stage (17% and 12%, respectively), making both of these verticals amongst the most challenging to gain traction.
  • On the other hand, Compliance and Infrastructure & Enterprise Banking are two verticals that have not attracted many entrepreneurs. Yet, when Canadian ingenuity is thrown against these sectors, there seems to be a relatively strong success rate; in both verticals, about a third of the startups operate in the expansion stage.
  • Crowdfunding has some major obstacles to overcome. There have been no Canadian-based crowdfunding companies that have been able to hit the expansion stage.
  • Cryptocurrency & Blockchain applications tend to spend relatively less time in the pre-launch stage. Alternatively, these applications have been hard-pressed to get out of the early stage, with only one company in expansion.
  • The Corporate Finance vertical has been one of the least popular verticals for entrepreneurs, even though Wave Accounting and Freshbooks are two among the great success stories of Canadian FinTech.
  • While Lending is a crowded vertical and has made good progress relative to the other verticals, we notice there is a certain sub-segment that has received little traction: Mortgages. The mortgage market is massive in Canada, yet has seen little innovation.
  • The Insurance vertical is the third most crowded vertical in Canada based on the number of startups in the space. Yet, with around one-third of its startups in pre-launch, entrepreneurs still see ample opportunity for innovation

Created by Jonathan Shaanan

2017 map