Is the Plunging Loonie Good or Bad for Canadian Startups?

In mid-January, the Canadian dollar dropped below 70 cents against the U.S. dollar, devastating Canada's energy sector and leaving many without jobs. At the same time, however, the plunging loonie could make the Canadian tech sector more popular for foreign, and particularly American, investors and venture capitalists. In an article featured on msn.com, Stephen Partridge, who sits on Startup Canada's board of directors, commented that American venture capital firms are showing mounting interest in Canada, as "over the past 12 months, you're hearing [U.S. investment in Canada] left, right and centre.""Ž

A significant factor driving investment is that Canadian tech firms have the ability to generate revenue in the U.S. while incurring expenses in Canada. Jim Orlando, managing director of OMERS Ventures, has stated that this advantage makes "our dollar go further and makes these [Canadian] companies healthier than their American counterparts." Canadian companies specializing in quick-turnaround projects for other firms, such as those producing apps or other wireless solutions, may now have a significant advantage when bidding on contracts. In the msn.com article previously mentioned, Steven McCartney, Vice President of Startup Services Group at Waterloo-based Communitech, cites Canadian tech startups Plasticity and Aeryon Labs as companies that may attract significant investment on account of the weak loonie. McCartney also adds that the currently low Canadian dollar is increasing incentives to close deals that are already underway quicker. "Ž

Of course, the low loonie is not the only factor driving American investment into Canada. In December 2015, David Teten, a partner with New York-based FF Venture Capital, wrote a piece in the Globe and Mail outlining why his firm has increased its investments in Canadian startups. Tetan cited Canada's rational immigration policies and strong tax incentives for investments in research and development as key factors, apart from the dropping Canadian dollar, driving FF Venture Capital's investments in Canada.

Not everyone is as positive about the weak loonie's effect on investment into Canada, however. John Ruffolo, chief executive officer of OMERS Ventures, was cited in an article written for the Guelph Mercury, stating that "there are lots of pluses and minuses [associated with the weak loonie]" and that "personally, I think the minuses outweigh the pluses." Ruffolo was cautious about being overly positive on the potential impact of the low Canadian dollar, pointing to some of its negative effects, such as making it more difficult to attract top-level tech talent and increasing the vulnerability of fast-growing startups to acquisitions from foreigners.

It's likely too early to reach a conclusion on how the weak loonie will ultimately affect the Canadian startup community. Still, the potential of increased investment in this economy certainly seems like cause for celebration.