Lately I’ve been writing more and more about the larger startups in the region because they have the biggest impact in terms of job creation, revenue growth and attracting capital.
I’ve never summed up in a single column why I believe the focus on the larger companies is so important. But there are metrics that show the biggest impact comes from scaling successful companies rather than starting a lot of little companies.
Just to be clear, when I mention “larger startup” I’m talking about fairly young, locally-owned companies that are commercializing technology. But my focus is on those with more than 10 employees and $100,000 in annual revenue, not those still looking for a product that meets market demand.
There are three reasons these “larger startups” offer the biggest bang:
1. They attract the most equity capital. We’re just beginning to tally all the data from 2016, but it’s looking like it was a sweet year for capital raising by Atlantic Canadian startups — especially the bigger deals.
Our early count shows there were 14 companies that raised more than $1 million each in 2016, and in total they raised more than $55 million. About $38 million of that money came from outside the region.
In 2015, the $1 million-plus deals amounted to about $33 million.
In recent years, the larger deals have made up more and more of the total funding for startups, and it looks like funding grew strongly in 2016 because of these large deals.
2. They grow sales more quickly than other companies. Logically, you’d think the strongest growth would be in the smaller companies, which are gaining revenue for the first time.
But actually, the strongest sales growth is in bigger startups, which have found a market for their product and have sales staff to push it out to buyers.
Atlantic Canadian startups are increasing revenue at a surprising rate — up 66 per cent in 2015, according to the 120 startups that shared their revenue data with us. But companies with more than $100,000 in annual sales produced sale growth of more 76 per cent. Again the biggest impact is found in the larger companies.
3. And they hire far more employees than smaller startups. Given that they bring in the most investment capital and revenue, maybe it’s not surprising that bigger companies hire the more people. But we were surprised by how many more people are hired by the large companies.
For 2015, we received employment data from 152 startups, and their total staffing increased by about 25 per cent.
In total, they hired the equivalent of 160.5 full-time employees in Atlantic Canada.
An astonishing 120.5 of these positions were created at companies with more than 10 employees. In other words, for every job created at a small startup, there are three created at a large startup.
These stats are important because there’s been a lot of focus in economic development on increasing the number of companies launched in the region. The thinking seems to be that if there are a lot of new companies, they’ll create growth.
The far more important statistic — and one that’s harder to track — is how many of these young companies are growing into bona fide corporations with global reach.