UWaterloo startups rank second in North America for investor ROI

Investors looking for higher returns might be wiser to look to Waterloo companies than ventures started by alumni at Stanford, MIT and Harvard.

A new report from a U.S. platform for investors and startups has found that ventures founded by Waterloo alumni produce a higher-than-expected return on investment than their counterparts at the three American institutions.

The data from AngelList Venture show Waterloo startups generate outsized ROI for their investors, with an average excess markup rate 13 per cent higher than the baseline at 12 and 36 months.

Only the University of Washington ranked higher with a rate of 21 per cent, while Brown University came in third with an 11.5 per cent excess markup rate.  Two other Canadian universities made the ranking, with University of Toronto coming in at 16^th and McGill University at 19^th.

The platform considers an investment on its list to be marked up if it does an equity round at a higher price per share in a future fundraise. The rate is a strong indication of how an investment is performing, the company says.

“This speaks highly of Waterloo founders’ ability to thrive here in southwestern Ontario, well outside of Silicon Valley, New-York or Boston,” said Vivek Goel, president and vice-chancellor of the University. “Waterloo companies like ApplyBoard, Vidyard and Clearco are paving the way for future founders who want to grow within Canada, helping to increase the prominence of the Toronto-Waterloo tech ecosystem on the global stage.”

The Toronto-Waterloo corridor ranked 18th globally in a Startup Genome’s 2020 Global Startup Ecosystem Ranking and first in Canada.

The findings indicate that Waterloo founders are being underestimated or undervalued by investors, said Alex Norman, a partner at N49P and co-founder of TechTO. “As investors see more and more University of Waterloo founders succeed, this may lead to more teams being funded or higher valuations for early-stage companies.”

While Canadian founders might be initially passed over by U.S. investors, great results for Waterloo founders over time are allowing early supporters to reap outsized rewards.

"It is no longer a secret that the University of Waterloo is a top school for innovative talent in North America,” said John Dick, director of Concept, the University’s experiential entrepreneurship program.

Young companies will continue to flourish in Waterloo Region through the University’s Campus Innovation Ecosystem and Velocity Incubator, which offer many problem-solving and venture-building opportunities, he said.

While founders with Waterloo pedigrees might not see the same level of investor demand as those at larger institutions in the U.S. AngelList says that can make them undervalued, "meaning that investors willing to back the founders from these institutions may have an opportunity to capture some excess returns.”

The findings come at an eventful time for Velocity, the University’s flagship entrepreneurial incubator, which announced recently that the total amount of funding raised by Velocity companies surpassed $2.4 billion. The incubator took almost a decade to reach the $1-billion mark but less than two years to reach $2 billion, showing an acceleration in both deal numbers and sizes. Velocity is expecting an alumni company to go through IPO for the first time later this year.

Velocity started its own pre-seed venture fund in 2019, and 18 out of 19 companies they have invested in so far received meaningful follow-on investments, highlighting the program’s ability to support early-stage founders and help them turn ideas and prototypes into marketable, scalable companies.