Plunging Loonie Could Be Boon for Startups Seeking Venture Capital

Plunging Loonie Could Be Boon for Startups Seeking Venture Capital
The weakening loonie makes Canadian companies cheaper for Americans to invest in. This could be a much-needed boost for the startup ecosystem. The Canadian Press/Paul Chiasson
The Canadian Press
Updated:

TORONTO—Industry watchers say the tumbling loonie is a blessing in disguise when it comes to Canadian startups and the innovation economy as U.S. venture capitalists look to make their investments go further.

As the resource boom that helped fuel Canadian growth over the past decade continues to go bust, Canada’s commodity-sensitive currency has lost nearly 40 percent of its value and now trades at near 13-year lows.

While that spells trouble for snowbirds looking to travel abroad and for consumers facing higher prices on imported goods, it presents an opportunity for foreign investors, says Steve McCartney, vice-president at Communitech, a Waterloo, Ont., startup incubator.

“In terms of the dollar, Canadian companies would look like they would be an excellent value for them at this point,” he said.

The cheap loonie is also an advantage for startups when they’re making their pitch, he said, because many of them take in revenue in American dollars but pay operating costs in Canadian currency.

And for young companies looking to compete with established players, the low loonie allows them to compete more aggressively on price, he added.

John Somorjai, who heads the venture capital arm of Salesforce, an American cloud computing and customer management company, said his company has seen great results from its Canadian investments, including video marketer Vidyard.

Many of them [startups] take in revenue in American dollars but pay operating costs in Canadian currency.