Startups with U.S. clients cash in on plunging loonie
Low loonie helps to make Canadian tech startups more attractive to U.S. investors
When Marie Chevrier started her company two years ago she wasn't factoring the exchange rate into her financial planning, but today it certainly has her attention.
"I definitely think that having revenue in U.S. dollars is a competitive advantage for us right now," she told CBC News.
Chevrier is the founder of Sampler, a Toronto-based software marketing company that helps consumer goods companies such as L'Oréal and Mondelez distribute product samples online.
With the Canadian dollar sitting around 71 cents U.S., Chevrier and other Canadian technology startups are seeing a boost in revenue from U.S. clients.
"The majority of our staff is actually here in Toronto and so they're paid in Canadian dollars," said Chevrier. "Most of our expenses are in Canadian and a majority of our clients are actually in the U.S. and paying in U.S. dollars, so it has been a positive thing for us."
Lure for U.S. investors
A declining loonie could also open the door for more U.S. investment, with venture capitalists south of the border seeing the dollar as another reason to invest in Canada's technology sector.
"I believe it's a really good bang for their buck to come and get the talent from here, and sometimes, especially right now, at a bit of a discount," said Chevrier.
It's a really good bang for their buck. –Marie Chevrier, Founder of Sampler
Kevin Dewalt is an "angel" investor based in Savannah, Ga., who commits his own money to companies. Over a year ago he invested in Chevrier's company, but it wasn't a cheap loonie that attracted him north.
"For angel investors it's not the primary consideration, because all the other risks of the company and the team are much bigger," said Dewalt. "The bigger the deal, the bigger the company, the larger the amount being put in, that's when issues like currency rates would be more likely to sway an investor."
For Dewalt, it was a visit to Toronto in 2014 that influenced his decision to invest in a Canadian startup. And now he has Canada on the top of his list of places to look for future investment opportunities.
"I was extremely impressed with the startup community there, the level of sophistication of the entrepreneurs, and in Marie's case she was just an exceptionally impressive entrepreneur," said Dewalt.
Canadian startups are seeing an increasing influx of cash from the south. According to PitchBook, which tracks startups globally, in 2010 U.S. investors participated in deals with 46 Canadian companies, totalling $373.7 million in investment. In 2015, that number rose to 121 deals, worth over $1.2 billion.
Paul Salvini, who heads the Accelerator Centre in Waterloo, Ont., does see advantages to a low dollar, but credits Canada's reputation for innovation and entrepreneurship as the main driver for U.S. investors looking to put their money here.
"Really, when they come here they're seeing the ideas, they're seeing the talent, and that's the reason that they're actually staying and making investments," said Salvini.
Low loonie top of mind
The Accelerator Centre is designed to develop technology startups through mentoring. And for the companies there, the advantages of doing business with U.S. clients and investors is top of mind right now.
"We are starting to look more at the U.S.," said Matt Neill, co-founder and CEO of a tablet application for the wine industry called POET. "The way the dollar is right now, we're thinking about how it actually is more beneficial to reach out to American companies, get paid in U.S. [dollars] rather than focusing solely on Canadian companies."
With the Canadian currency in today's state it's actually a bonus for us.–Charles Chung, CEO of Brisk Synergies
Charles Chung already has clients in the U.S. and abroad. His company, called Brisk Synergies, creates technology to help cities collect traffic data.
"Any transaction that's being done with our clients overseas [is] usually in U.S. dollars. So with the Canadian currency in today's state it's actually a bonus for us," said Chung.
Risky to rely on low dollar
Salvini cautions, however, that although a low dollar is currently benefiting startups with clients in the U.S, they need to be mindful that the value of the dollar can change.
"We wouldn't encourage our companies to rely on the low dollar as a competitive advantage," he said, urging businesses to take the opportunity of the low dollar to move into the U.S.
"Make those investments in growing into new markets, especially into the U.S. market, sooner than they might otherwise if there were a high dollar."
And there is also a potential disadvantage to a low loonie, if highly skilled workers head south where they can earn more valuable U.S. dollars working for companies in places like the Silicon Valley.
But some in the startup sector here aren't overly concerned about the low dollar leading to a significant brain drain.
"The low dollar makes our globally renowned educational institutions that much more affordable for top international students. As we have already seen, many of these students choose to remain here — a definite brain gain for Canada," said Salvini.