FinTech Investment Remains Strong, Canadian Start-Up Piques Interest From US Investors

Published By Andrew Maker

At the Consulate General of Boston our vision is to nurture and facilitate connections on both sides of the border to help Canadian companies grow. We work with businesses in New England by making connections to Canada and driving value and innovation to the region. One of our latest success stories centers around Railz, a Toronto based startup in the FinTech sector keying in on data and analytics for the small / medium business (SMB) market.

In a year of uncertainty and tightening pocketbooks, whether out of necessity or caution, you may expect the financial sector to have struggled during the pandemic. However, these early concerns turned into opportunities, growth and even new business for Railz.

Railz helps financial institutions generate insights quickly and efficiently to make well-informed decisions for SMBs. Its tools for data collection and analysis are innovating the way financial service providers do business with their smaller customers. Railz, which started as a two-person company and incorporated in June 2020, realized it needed capital to grow. The somewhat accelerated fund-raising timeline was an important factor for Railz who saw COVID accelerate the need for its services. This was on the roadmap for financial institutions 5 years from now, but COVID pushed that timeline up as well as the increase in demand for capital, explained Sohaib Zahid, CEO of Railz.

They found backing for their business in the team at Vestigo Ventures, a Cambridge, MA based firm, when they closed their seed funding round in August 2020. Vestigo specializes in the FinTech sector and saw a strong need and growth potential for Railz’s SMB-focused solution.

Railz is the first Canadian-based company Vestigo has invested in, but leadership in the firm has considered cross-border operations an underrated opportunity for some time now. Their first deal revealed many advantages and experiences to set them up for the future. Frazer Anderson, Senior Associate at Vestigo explained that policies such as the legal framework, tax credits and talent in Canada all allow for generally smooth business deals and makes Canadian start-ups hidden gems.

Specific to the venture capital industry, Canada has a similar legal framework as the U.S. Also, Canada has several programs and initiatives that New England companies should consider. Companies of any size investing in research and development (R&D) in Canada can take advantage of the Scientific Research and Experimental Development (SR&ED) tax incentive program. Another program, the Strategic Innovation Fund (SIF) includes financial incentives that encourage R&D which will accelerate technology transfer and commercialization of innovative products. As a result of the Pan-Canadian Artificial Intelligence Strategy, companies can tap into a growing AI talent pool, leverage national AI research capabilities, and partner with leading AI research institutes on new technology developments.

Anderson, who has a soft spot for Canada after living and attending university there, said despite this the country is still not high on the radar of venture capitalists. “I believe to produce unusual results you have to look to unusual tactics and places,” said Anderson. “That being said, it shouldn’t have to take living there for an extended period of time for people to be interested in investing.”

Anderson has unique exposure to this ecosystem so he recognizes the potential, but he said the Consulate General of Canada in Boston has been key in providing exposure to companies he may not have come across otherwise. That’s why he has continued to engage with the Consulate on how to improve the relationship with New England businesses. He hopes to bring other VCs to major cities like Montreal to experience both the similarities to New England, as well as the exciting differences and why it makes sense for Canada to be part of their ecosystem.

“Our firm recognizes the potential in the Canadian ecosystem, and the Consulate has been a multiplier of that, allowing us to keep a pulse on even more businesses.” Anderson said, something that is particularly important in the early-start up stage. The feeling is mutual when working with investment partners like Vestigo, who provide vital seed stage funding, but tend to be involved long term, partnering with companies for an average of 8-9 years.

“Vestigo knew the space well and took the time to get to know us,” said Zahid. He said he did not feel that connection was diminished in virtual meetings, and in fact, making this process the norm for future opportunities could potentially be an advantage for start-ups to save money and time when traveling for multiple fund-raising meetings.

“Historically your point of contact for capital and services was a bank branch, those were closed, and even when they fully reopen, our solution provides a more efficient option. Most financial institutions have a very manual way of gathering and interpreting data. Railz allows data to talk back to you and gives underwriters superpowers.” said Zahid.

“Investors are attracted to Canadian startups across industries because of the support that they receive when growing. Often times that means early non-dilutive capital, tax credits for research and development and strong relationships with academia, accelerators and incubators” explained Trade Commissioner Andrew Maker. In his role with the Consulate General of Canada in Boston he has observed Canadian fintech capabilities shine through on payments, lending, wealth and investment-related solutions as well as RegTech, an emerging sub-sector within FinTech. The Canadian banking sector ranks second among G20 countries in terms of soundness and 6 out of 141 countries globally. This allows new businesses to experience a great proving ground.

All three parties agreed that the Canadian culture of science and technology, paired with friendly policies towards innovation, make them primed for tech and startup businesses. The fact that Railz received funding through 100 percent virtual discussions and negotiations spells for an exciting future for both parties now, and post-pandemic.

If your New England company is looking for a great start-up to partner with or invest in or wants to learn more about policies and opportunities, the Consulate General of Canada in Boston is here to help.