The Canadian Venture Capital & Private Equity Association recently published its 2018 first half (H1 2018) report on Canadian venture capital (VC) and Canadian private equity (PE) investment. While Canadian PE investment remains feeble, Canadian VC investment has continued to climb to incredible heights.

A review of the increasing trends in Canadian VC investment, with respect to the volume and size of deals as well as the stages and sectors engaged, reveals that VC investment in Canada is very robust and showing no signs of slowing down. With H1 2018 already outpacing last year, VC-seekers should be excited and motivated by the current state of VC investment in Canada and the innovative environment that it is cultivating.

Significant findings

  • Canadian VC investment continues its five-year ascent: At the close of Q2, the year-to-date Canadian VC investment stands at CAD $1.7B, representing a 7% increase from the first half of 2017.
  • ICT sector continues to receive majority of Canadian VC funding: information and communication technology (ICT) attracted just under two-thirds (64%) of total VC dollars invested in H1 2018.
  • Increased investment in later-stage companies: later-stage companies received 54% ($901M) of total VC dollars invested in H1 2018, compared to only 41% last year.

Overview of Canadian VC investment activity

In H1 2018, approximately CAD $1.7B had been invested across 308 deals, representing an average deal value of CAD $6M—a 13% increase over the CAD $5.3M average deal size in the five-year period between 2013-2017. In total, there were seven CAD $50M+ mega deals – amounting to almost CAD $500M. This parallels the volume of mega deals evident over the previous two-year period.

Ontario continues to be the primary jurisdiction for deal activity with both the quantity of investments (116 deals) and deal amounts (CAD $907M) exceeding the combined total for all other provinces, excluding Quebec. Toronto-based companies (CAD $793M over 89 deals) accounted for over a quarter of the deal volume (29%) and nearly half the total funding (47%). Montreal (CAD $254M over 64 deals) and Vancouver (CAD $264M over 38 deals) rounded out the top three cities, both with respect to deal volume and total investment.

Canadian VC Investment by sector and stage

Canadian VC investment continues to be concentrated in the ICT sector (CAD $1B over 189 deals) with the total funding (64%) and deal volume (61%) greater than the cumulative totals for the life sciences (CAD $204M over 48 deals), CleanTech (CAD $192M over 28 deals) and agribusiness (CAD $79M over 15 deals) sectors. In fact, of the nine largest deals by value in H1 2018, six were within the ICT sector.

Early- and later-stage companies continue to receive significantly more funding compared to seed companies, despite being involved in a fewer number of deals (106 deals involved seed companies compared to 97 apiece for both early- and later-stage companies). Interestingly, there was a noticeable predilection towards later-stage companies, which received 54% (CAD $901M) of total dollars invested compared to only 41% from last year. This investment shift resulted in early-stage companies receiving only 37% (CAD $612M) of investment dollars, down markedly from 52% in 2017.

The author would like to thank Neil Rosen, articling student, for his assistance in preparing this legal update.

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