By: Avery Mullen

With Halifax churning out high-growth, high technology companies at a pace faster than any time in its history, the ecosystem that funds startups is showing signs of moving up a weight class.

In the first half of 2021, Halifax cracked the top five cities in Canada for venture capital activity, according to the Canadian Venture Capital and Private Equity Association, producing 14 funding deals worth a combined $42 million.

The city beat out sixth-place contenders Kitchener and Waterloo in Ontario, which saw $447 million worth of investment activity, but only nine deals -- despite its reputation as the tech hub that birthed smartphone and automotive software giant Blackberry.

The only four cities that booked more deals than Halifax were Calgary, Vancouver, Montreal, and in the first place, Toronto. By deal count, Halifax is now competitive with the country’s most internationally recognized innovation ecosystems.

Halifax tends to produce smaller deals than its new peer cities, at an average of about $3 million in the first half for the Nova Scotia capital. And none of the 10 largest deals recorded in the first half were in Atlantic Canada.

But the relative youth of Halifax’s innovation ecosystem offers a possible explanation for the smaller deals. According to research by Entrevestor, 289 startups were headquartered in Halifax at the start of this year. Three years earlier, in 2017, that number was just 176.

As companies mature, the size of their funding rounds tends to increase. And the deals posted so far in 2021 hint at a cohort of companies that could soon attempt raises rivaling those common in more westerly urban centers.

In April, Audioptics Medical raised a $1.9 million funding round led by German medical device-maker Carl Zeiss Meditec AG and provincial venture capital Crown corporation Innovacorp.

Ph.D. student Dan MacDougall and Rob Adamson, an assistant professor of biomedical and electrical engineering at Dalhousie University, co-founded the company in 2016. Two years later, Audioptics was chosen as one of four companies in the inaugural cohort of Innovacorp’s MedTech Accelerate Program.

QRA Corp., meanwhile, raised $3.8 million in April. In part of a growing trend, the company attracted the attention of major, institutional investors outside of Atlantic Canada

The round’s participants included Paris- and San Francisco-based Newfund and BDC Capital, both first-time QRA backers and returning investor Innovacorp. BDC Capital, part of the federal government’s Business Development Bank of Canada, invested in its Bridge Financing Program, which was announced at the beginning of the pandemic.

QRA, best known for its flagship software meant to identify problems with the written specifications describing a mechanism or engineered product, said the money would go towards expanding its business development and customer service teams.

“We really felt this was someone we could work with,” said CEO Jordan Kyriakidis of investor Newfund at the time. “They can help us with business development and introduce us to enterprise customers around the world. And some of their portfolio companies are in a similar space but ahead of us, and we could learn from them.”

And Outcast Foods, which sells powdered food products made from rejected produce, closed a $10 million funding round in April. The deal followed up a $4 million raise from 2019.

The company said it will use the money to expand its plant in Dartmouth and build a plant in Southern Ontario that will have the capacity to generate up to $30 million in annual revenue. Management expects this will allow Outcast to pursue larger, international clients, including food and drink giant Nestle.

Like QRA, Outcast’s raise was the result of it drawing the eye of investors outside the region. Half of the round came from Toronto-based District Ventures Capital -- a food and wellness VC fund started by serial entrepreneur and CBC Television personality Arlene Dickinson.

“When we started, the challenge was to develop a market in an unknown category, and here we are now at the head of a new category,” said CEO Darren Burke at the time. “I think now we’re growing the market.”

Despite the prevalence of investors from outside the region, though, Halifax is also home to several local VC funds that have helped buy fundraising totals.

Concrete Ventures is a VC fund that specializes in raises sized comparably to typical angel investment deals -- territory that many of Halifax’s recently-minted startups occupy. Build Ventures tends to specialize in larger investments, typically in the $1.5 million to $3 million range.

And even for raises with out-of-province backers, Innovacorp is a frequent partner. Most of the largest startups Entrevestor reports on and includes in its databank have received funding from Innovacorp.

A defining moment for Innovacorp came in June after a reverse listing on the NASDAQ stock exchange elevated advanced materials manufacturer META to unicorn status. Innovacorp booked the largest exit in its history: $104 million.

A spokesperson told Entrevestor that counting the profits from META, Innovacorp’s performance since 2015 puts it in the top 5 percent of North American VC funds.

The exit came as Innovacorp was already contemplating self-funding, rather than continuing to circle back to the provincial government for more investment capital, according to Vice-President of Investment Andrew Ray in July.

“The questions that we ask internally are, ‘How do we scale, not just the companies that we work with, but the ecosystem as a whole, and how do we scale Innovacorp?’” said Ray.

“And the way that we do that is by generating above one-X returns. If we have a $25 million fund and get $25 million back, we keep doing what we're doing. But if we have a $25 million fund and can two-X or three-X that, then now we have a $50 million fund that we can start to deploy.”