Entrepreneurship in Canada: latest story – Blog #36

16, November 2022

Entrepreneurship in Canada: latest story

Entrepreneurship is alive and thriving in Canada, according to the latest report1 from the Global Entrepreneurship Monitor (GEM). This is the latest in an annual series of reports on the state of entrepreneurship in Canada.

Perception of skills

The Canadian population feels very positive about entrepreneurship. More than half know an entrepreneur personally; nearly 50% believe they have the skills to start a business and 23% have plans to start a business. However 53% say fear of failure would hold them back from starting a business, the second highest level in the G7 (Canada, US, UK, France, Germany and Japan). 7 out of 10 Canadians feel that they see good opportunities to start a business.

Activity

GEM measures two metrics for entrepreneurial activity – TEA (Total entrepreneurial activity) and EB (established businesses). TEA consists of the fraction of the adult population actively planning to start a new business plus those running a business less than 42 months old. EB are businesses older than 42 months.  The graph below shows how Canada compares with other G7 countries. Canada has the highest level of TEA in the G7, and the second highest EB level.

TEA and EB – Canada compared with the G7

 

 

 

 

 

 

 

Funding

Canada ranks 1st amongst G7 countries in identifying Business Angels as an important source of funds for new businesses, and was 1st in level of informal investment. Canada also had the highest average level of funds in the G7; a significant increase from 2020. One explanation for higher investment in 2021 was the need for

Angels to provide follow-on funding to help investee companies survive economic hardship during the height of the pandemic in 2020, with Angels now seeking new investment opportunities.

 

What kinds of business were started?

In common with all the G7 countries, consumer oriented services is the largest category of new businesses, representing 52 % of all new businesses. This is followed by business oriented services (26%), manufacturing (19%) and extractive industries (3%). This last category includes agriculture mining and oil and gas extraction.

What are their growth plans?

GEM has a number of growth measures and in 2021 all of them showed positive increases compared with 2020. 16% of startup entrepreneurs and 12% of established businesses expect to create 10 or more jobs in the next 5 years.

Export orientation

Canada has the highest level of export orientation among G7 countries. 4.3% of startups and 1.2% of established businesses have 50% or more of their revenue from outside the country.  This is a very good sign and is probably explained by the fact that Canada is a small export oriented economy.

Who are the entrepreneurs?

The most common age range for Canadian entrepreneurs is 25-34 with 30% of all startups.  Younger entrepreneurs (18-24) were not far behind at 28%. Older entrepreneurs have lower activity – 23% for the 35-44 age group; 12% for 45-54 and 9% for the 55-64 age group.

The gender ratio for startups varies quite a lot from year to year.  In 2021 the male TEA rate rose by 40% compared to 2021, while the female TEA rate rose by 14%. The female TEA rate was 65% of the male TEA rate.  The gender ratio for established businesses tends to be much more stable, the female EB rate being 68% of the male EB rate in 2021.  Both the male and female TEA rates were the highest in the G7.

Canadian entrepreneurs are highly educated. 22% of all TEA entrepreneurs have graduate experience, 21% have a post-secondary degree, 19% have high school diploma and 15% have some high school or lower. Canada’s entrepreneurs possessed the highest educational rates across three of the four educational levels.

How innovative are the entrepreneurs?

In common with other countries, most startups are not very innovative. In 2021, in Canada, 46 % of entrepreneurs said their product or service was not new. 30% said their product or service was new to people where they lived; and 15% said their product or service were new to the country. However 9% of entrepreneurs said their product or service was new to the world, and that is a very encouraging number as it demonstrates their strong competitive advantage.

What motivates the entrepreneurs?

GEM asks a series of questions to probe motivation, as shown in the table below.  There are significant differences between male and female entrepreneurs.

Motivation Male Female
To make  a difference in the world 16.3 12.0
To make great wealth 16.5 10.9
To follow  a family tradition 13.2 6.8
To earn a living because jobs are scarce 17.6 10.7

 

The biggest motivator for male entrepreneurs in 2021 was “to earn a living as jobs are scarce”, which probably reflects the turmoil caused by COVID. For female entrepreneurs the biggest motivator was “to make a difference in the world.”

Supports for entrepreneurs

GEM identifies 13 framework conditions that support entrepreneurs. Canada is mostly in the middle of the pack when compared with other G7 countries when ranked on these supports. Canada was ranked highest for “government policies bureaucracy and taxes”, and second highest, behind the US, for “cultural and social norms”. Canada ranked well for entrepreneurial education at primary and secondary schools but poorly for entrepreneurial activities at colleges and universities. Two areas where Canada is ranked poorly are R&D transfer and physical infrastructure

Conclusion

2021 was a difficult year for the economy because of COVID but despite that entrepreneurs in Canada were very active and in many cases led their G7 peers. The study revealed strengths and weaknesses in the entrepreneurial support system, with particular attention needed to improve R&D transfer and physical infrastructure

 

  1. GEM Canada report 2021/22 https://www.gemconsortium.org/file/open?fileId=51066

Peter Josty