$1B+ of investment raised by Velocity companies: digging into the numbers

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We love when Velocity alumni companies raise substantial growth investment because it’s a strong private market signal that they’re leading in their field and poised to continue their rapid growth. Recent investments secured by AvidBots, ApplyBoard, Embark Trucks and Faire have propelled the collective investment secured by Velocity companies to over $1 billion dollars (specifically $1.26B).

Reaching this milestone reinforces Velocity’s position as the most productive startup incubator (by investment) in Canada. It is a great showcase of the massive economic returns yielded through collaboration across academia, all levels of government, other startup/scale-up support organizations and founders (past and present) helping each other. It truly takes a village to grow our ecosystem’s strength at the pace we desire.

This $1 billion milestone has been achieved by the 131 Velocity incubated companies that raised investments. Many of these startups have achieved “escape Velocity” (pun intended) into scale-up territory to become category leaders and future economic powerhouses. In a major new report examining the economic impact of the University of Waterloo, Deloitte found that Velocity incubated companies have created over $1 billion in revenue and thousands of jobs— growth that has made the Toronto-Waterloo innovation corridor a force to be reckoned with. Revenue and job growth could rise even further quickly and sustainably as these startups and scale-ups put their investments to work.

Velocity started in 2008 as a humble University of Waterloo dorm incubator aiming to bring smart, driven, high-entrepreneurial-capacity students together. It is no small feat to go from projects-turned-startups dorm to collectively raising over $1 billion in just over a decade. While we are elated by their achievements, we know this is only the beginning. Our 10 years of experience has positioned us well to accelerate the rate of equity value creation with significant social and economic impact.

We took some time to analyze the investment data by looking at it from different lenses, such as segmentation by technology and by industry. Here are some notable observations behind the >$1 billion in investment raised.

Marketplace & Hardware emerge as leaders among wide range of investments by technology

The largest investment category of technology incubated by Velocity is Marketplace. Marketplace is defined as enabling multiple third parties (e.g., buyers and sellers) to conduct business digitally, which results in higher market efficiency and network effects. In total, $365 million (29% of all investments) was invested in this category. This is followed by investments in Hardware ($303.5 million). We define Hardware as physical devices/equipment that may have digital, electronic, or computing components. Some examples of technologies in Hardware are wearables, robotics, internet of things devices, and drones.

Rounding out the top 3 is Software-as-a-Service, which attracted $212.6 million in investments. The four following technology categories in descending order are Artificial Intelligence ($170.3 million), Mobile Apps ($144.2 million), Health Technologies ($29.7 million), and Advanced Materials ($12.8 million). We believe the latter two are poised for significant growth in the coming years. The seed investments have been planted and we project a significant likelihood of larger growth rounds to fuel scale.

Velocity has always intended to create a rich environment for intellectual property to be created and commercialized by our founders and their startups. The many technologies that attracted significant investment from across the globe reflect exactly that.

About 76% of capital went to 5 startups 

We know from experience that not all tech startups will seek or are ready for the jet-fuel that is venture capital investment. Those that do so successfully often raise successive capital on the heels of their exponential growth—and in the pursuit of furthering that growth. Velocity’s top 5 startups (Faire, North, Embark, Kik, and Vidyard) have collectively raised over $952.6 million, amounting to about 76% of all investment dollars. This is in line with the power-law that is commonly cited in the venture capital world; the bulk of growth and returns generally come from a small but potent part of their portfolio.

Diversity is a strength

Our top performing companies are founded by teams with diverse backgrounds. While some risk being underestimated in their entrepreneurial capacity, their potential did not surprise us when we took a bet on them early.

It has been well studied that teams with gender diversity are more likely to create success. Furthermore, US data have shown that more than half of startups valued at $1 billion or more have immigrants as part of their founding team. Simply put, perspective matters. We believe that Velocity startups benefit from our purposeful community building as they work to create massive value. For example, of the top 10 actively scaling companies supported by Velocity:

• 2 are led by female founders: Kira Talent and Bridgit 
• 4 are co-founded by immigrants: Faire, ApplyBoard, AvidBots, ChefHero

We know there is a lot more work to do, particularly on gender diversity in the startup world, and we will continue to support more promising early stage tech and tech-enabled startups from Acerta Analytics Solutions to Marlena Books.

Innovation is transforming all sectors of the economy

In our early days, Velocity was mostly focused on the future of mobile and media. As our programming expanded in the subsequent years, we began accommodating an ever-more diverse group of entrepreneurs. This is far beyond the “software is eating the world” thesis put forward by famed investor Marc Andreessen, though it is certainly part of the story. This is Velocity extending support and building capabilities to ensure founders with background ranging from software to life sciences can all benefit from existential support and critical resources during the crucial, early stage incubation period of their businesses. Our founders often mention that their startups might not have existed if Velocity didn’t exist.

Velocity companies and alumni operate in multiple industries (please watch our video above for a full breakdown). The top 5 most prominent industries are Commerce (29%), Communications & Messaging (20%), Wearable (18%), Mobility & Transportation (13%), and Education (7%).

While these figures mirror the performance of our top 5 startups, they also reflect that our founders are at the forefront of emerging trends and disruptive businesses and technologies over the past decade. For example, wearables simply did not exist 10 years ago.

Investment growth will accelerate

There are no overnight successes in tech (or anywhere for that matter). Many startups and their products require time to secure significant market traction. There is a long tail of angel/pre-seed/seed funded companies (130 of them) that are actively battling through “the chasm” of adoption and show significant promise. Just as with Venture Capital (VC) funds, realizing return takes time. VC funds typically have 10-year return horizon. Given that we’re investing resources pre-VC, it’s no surprise that the return horizon for our resource investment is 10+ years. 

While Velocity companies have continued to scale, so has Velocity’s capacity to support startups maximizing social and economic impact. Our capacity is significantly higher now than in our earlier days. This is because our community, infrastructure, team, and processes have strengthened over time and created more capacity to output and support more and higher caliber startups.

Finally, our most promising growth stage startups are scaling rapidly today, and there are more Series A+ investment rounds being worked on as you read this.

Some additional tidbits to show how our portfolio could grow exponentially:

• The average size of Series A round is $10.9 million (based on 15 deals)
• The average size of Series B round is $67.8 million (based on 7 deals)
• The number of investments through the progression of stages gets smaller while the size gets significantly bigger, as is expected/common based on the venture capital funnel

*Note: too few data points to average Series C round and beyond

Next breakout successes may come from deep tech

While the top startups in Velocity’s portfolio are poised to expand further, an often-asked question is: where will the next breakout successes come from?

When we studied our portfolio, we see emerging startups working on artificial intelligence, hardware, and health technologies, and they are looking to transform long-standing industries such as finance and insurance, healthcare, manufacturing, and mobility and transportation. When we dug a little deeper, we realized that one common theme is defensibility. More often than not, their products and services were made possible with their deep domain expertise and complex technologies. In essence, many of the next breakout Velocity companies may be classified as deep tech companies.

For example, Nicoya’s (recently in the news for its funding milestone) technological innovation, which led to the creation of OpenSPR (enabling scientists to get data directly from their benchtop), can be classified as a science deep tech company. Avidbots’s robotics innovation, which led to the creation of Neo (an AI that can clean floors in commercial buildings), can be classified as hardware deep tech company.

The next phase is beginning for Velocity founders

Whether the startup is doing deep tech work or not, we will continue to look for new and improved ways to serve our founders in the pursuit of building globally competitive companies. From opportunity discovery and validation to product development and sales to raising investment, we intend to continue building one of the best economic engines for value creation in Canada and support startups with technological innovations that will serve humanity globally. Our founders are just getting started and we couldn’t be more excited about what lies ahead.

Additional notes

• All investment figures are reported in Canadian dollar (CAD$).
• While investment only signals a company’s potential to scale and is a secondary measure of business success, it is well studied and documented that access to capital is strongly correlated to capacity and probability to achieve massive scale. At Velocity, our focus is to work with founders to efficiently scale a business with the primary measures of success being revenue. Our advisory and support ensure that our founders are focused on business fundamentals rather than focusing on raising capital as an end goal. Significant rounds of investment are often a by-product of key performance indicators such as revenue growth rate and profitability. 
• There are a total of 131 companies in this sample. Not all companies incubated by Velocity are included.
• Transactions related to Initial Coin Offerings (ICOs) are not considered investment dollars and therefore not reflected in our numbers.
• Transactions related to grants and other non-investment funding are also not reflected in our analysis. However, it is important to note that these funding opportunities are often critical to the survival of very early-stage startups.
• In some cases, individual company’s investment raised numbers may not be exactly the same as what is reported publicly in other sources (e.g., Crunchbase). Generally, this is due to currency conversion (e.g., USD to CAD) and in some cases due to our conservative approach in what we count as investment (e.g., we aren’t counting loans or repayable debt).
• We constructed many of the categories based on both our unique portfolio and what we can observe in the startup world. In many cases, startups may belong in multiple categories. Thus, we have to make a call on how to structure the presentation of data. We are certain that other valid combinations and permutations exist.