Canadian VC sees another quarter of $1 bln+ invested in Q3

Venture capital investment in Canadian technology companies continued at a robust pace in the first nine months of 2017, with $3.2 billion deployed to 377 financings, according to final data released by Thomson Reuters. In dollar terms, this represented a 26 percent increase from a year ago. Additionally, Q3 2017 marked the fourth consecutive quarter with more than $1 billion invested. A total of $1.16 billion went to 120 financings in this period, up 55 percent from the same time in 2016. Foreign investors have played a key role in 2017 market trends, with U.S venture capital firms accounting for 41 percent of all disbursements at the end of September.

A full PDF report of third quarter and year-to-date 2017 Canadian venture capital market activity by Thomson Reuters is available here.

REPORT SUMMARY (reproduced courtesy of Thomson Reuters)

Canadian VC Market Trends

Venture capital investment in Canadian companies continued at a strong pace in the first three quarters of 2017 with $3.2 billion invested in 377 rounds of financing. In dollar terms, this represented a 26% increase over the same period last year, the fourth consecutive quarter with over $1 billion of disbursements, and the strongest individual quarter on record since Q2 2001. The third quarter alone saw $1.16 billion of investment in 120 individual transactions, an increase of 55% in dollar terms over the third quarter of 2016. Deal volumes did not see the same gains, instead falling by 16% from the first nine months of 2016.

The average Canadian VC round size increased to $8.4 million in the first three quarters. While this represents a 2.4 times increase over the average round size just five years ago, Canada’s average round size continues to lag behind all other top VC-attracting nations. Despite the highest level of direct investment by Canadian governments, Canadian companies on average continue to secure less than their counterparts across all VC-intensive regions.

While Canadian companies have been securing larger VC rounds, this growth could not be attributed to domestic investors. Canadian investors were responsible for approximately 46% of capital disbursed in the first nine months; United States-based funds accounted for an additional 41%, and the remainder was accounted for by overseas investors. The last year in which Canadian investors accounted for such a low share of VC investment in Canadian companies was 1992, when 38% of VC investment in Canadian companies could be sourced to Canadian firms, with the remainder originating in the United States.

Canadian Fund Performance

While investment activity was on the rise, the performance of Canadian venture capital and growth equity funds had not reached the same heights. Final data provided by Cambridge Associates shows Canadian venture capital & growth equity funds with vintage years of 2000 or greater returned a since inception IRR of 2.3% as of the end of Q2 2017, lagging far behind both US counterparts and public market equivalents. The improvement of Canadian VC fund returns over the past four years, however, has brought industry performance into positive territory.

Canadian VC Trends by Region

While investment in Ontario held steady in the first three quarters, the most impressive gains in Canadian venture capital dealmaking went to the provinces of Québec and British Columbia. Investment in Québec surged by 31% over the first nine months last year, bring the province up to 7th place in the North American rankings. However, British Columbian investment activity more than doubled, up 129% from the same period in 2016, and pulling the province up to a 10th place ranking. With B.C. companies pulling in $794 million in the first nine months, the province has already far surpassed its previous full-year record of $594 million set in 2014. Alberta, not typically a province to rank in the top 30, placed 29th with just over $100 million of investment activity.

In a similarly close race, Toronto placed 11th among North American cities, with $872 million invested in the first three quarters, behind Atlanta, GA; and ahead of Austin, TX. Montreal placed 13th with $820 million in investment, edging out Denver, CO.

Canadian VC Trends by Sector

Canadian IT companies raised $801 million in Q3 2017, the most capital invested in the sector since Q2 2001, but the number of deals was down 13% from the same period last year. Through the first three quarters, Canadian IT companies secured just short of $2 billion, while life sciences companies followed second with $897 million invested. Cleantech companies raised just under $200 million in the first nine months, with the remainder rounded out by energy & industrial ($73 million) and consumer-related companies ($38 million).

Canada VC Fundraising Trends

Sixteen Canadian funds raised a total of $853 million in the first three quarters of 2017. While this was a comparatively poor showing as compared to the first nine months of 2016, when nearly $1.7 billion was raised, 2016 had represented the best year for Canadian VC fundraising since the height of the dot com era. Highlights of year-to-date fundraising included OMERS Ventures Fund III at $300 million and Vanedge Capital II Limited Partnership, with its third and final closing at $161 million. Round 13 Capital also closed on $95 million for its latest growth-stage venture capital fund.

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