Five Canadian cities with highest volume of investment dollars and deals in 2018

Canada’s tech ecosystem is consistently growing year-over-year. Startup Genome’s recent report revealed that not only is the Toronto-Waterloo region becoming one of the top regions globally for startup ecosystems, but cities across the country are also putting Canada on the map.

Startup ecosystem growth across Canada is reflected in the number and size of investment deals made in 2018. PwC and CB Insights’ MoneyTree report for Q4 2018 found $4.6 billion CAD, spanning 471 deals in 2018, marking the best year yet for VC dollars and deals since PwC began collecting MoneyTree data in 2012.

PwC’s report broke down the five Canadian cities that saw the highest volume of dollars and deals in 2018: Toronto, Vancouver, Montreal, Quebec City, and Calgary. BetaKit spoke with PwC’s tech team to better understand the factors that influenced each city’s success and what’s driving their growth in 2019.

Toronto

Toronto was Canada’s top market for venture capital investments, with its investments jumping back over the $1 billion CAD funding mark. Startups in the city took in roughly $1.7 billion CAD spanning 160 deals, a 47 percent increase from the previous year’s $976 million CAD across 136 deals.

“You’ve just seen more and more activity of businesses that are getting investment to be in Toronto.”

Fintech and artificial intelligence continue to be what Toronto PwC tech managing director Rich Adam called the “800-pound gorillas” in the market. The city continued to lead the country in the number of FinTech companies, with several notable funding deals in that space, including Clearbanc’s $92 million CAD round, as well as foreign exchange cloud platform Kooltra’s $6.5 million CAD round.

While Montreal has long been known as Canada’s AI capital, there are many signs that Toronto could also compete for that title.

“You’ve just seen more and more activity of businesses that are getting investment to be in Toronto,” Adam said, pointing to a number of major corporate investments supporting Toronto’s AI sector.

He noted that investments including Samsung’s AI centre in Toronto, and NVIDIA’s AI research lab, both announced in 2018, as well as the $100 million CAD donation from Heather Reisman and Gerry Schwartz to the University of Toronto for AI research, shows that the sector is poised to grow.

“I would suggest, just based on the sheer size of the marketplace here and the number of headquarters that this is going to be a continuing trend,” he stated, noting that while those two sectors take up the bulk of the headlines, there’s also plenty of other thriving sub-sectors in the city.

Adam pointed out that Toronto’s top five deals in 2018, (Clearblanc, Ritual, Ecobee, TouchBistro, and Wattpad), spanned the gamut of B2C, B2B, and hardware-software firms, some with repeat founders.

He also noted that attention should be paid to Toronto’s growing proptech sector, where construction project management software company Bridgit raised $7.75 million CAD in March, and real estate tech platform Nobul raising a private placement funding round in August.

“There’s a great level of interest from the commercial, and right all the way to the developer side of the [real estate] business, that are looking to adapt tech to maintain a level of relevance and competitive advantage,” Adam stated.

Vancouver

Vancouver investment dollars remained fairly static from 2017 to 2018 — the city’s startups brought in $522 million CAD, up 14 percent from the year prior — but there was a notable increase in deals, 101 compared to 60 in 2017.

Startup Genome’s recent report found that the city has been suffering from a “static” funding environment, calling that one of the key reasons for Vancouver’s fall in the global ecosystem rankings.

Cameron Burke, PwC’s technology sector managing director for Vancouver, called the PwC numbers indicative of two trends in the city. On the positive side, he said, Vancouver has a “proud and vibrant early and emerging tech ecosystem” that was seeing more VC funding flowing into it. He pointed to scaling-up as one of the main challenges facing the city’s tech companies.

“What I’m starting to see is…the narrative that we need to bring people here to grow and scale.”

“The challenge of scale remains, of taking a company from 100 to 700 people,” he said. “There’s just not that many people locally who have done that, and some of the people [who have] are still locked up into those companies. What I’m starting to see is…the narrative that we need to bring people here to grow and scale.”

Burke noted that he is watching with interest how people from British Columbia’s traditional industries are starting to cross-pollinate into tech and bringing new ways of thinking.

“Companies are looking beyond the traditional hiring purview,” he said. “The upside of that is that we could unlock massive potential of people that are already here and see that tech isn’t an industry in and of itself but a core component of every industry.”

The city’s VC funding declined quarter over quarter in 2018, starting strong with $169 million CAD in the first quarter and ending with $63 million CAD in the fourth. But Burke said that’s because the city’s four largest deals were all front-loaded, the third and fourth quarter “look weaker, but it averaged out to a relatively consistent level,” he argued.

Vancouver’s healthcare tech sector saw the biggest growth in 2018. Companies in that sector had 12 deals, up from two in 2017. They also raised the most money, at $87 million CAD up from $141 million CAD the year prior. That funding was bolstered by medical data company Canary Medical’s $26 million USD deal, and cannabis testing services firm Anandia Labs’ $13.4 million CAD private placement.

Burke also pointed to Vancouver’s FinTech scene as having done well, making up about a third of the deals in 2018, with notable standouts Bench Accounting, Finn AI, and Beanworks. He noted, however, that the city’s tech ecosystem remains diverse, pointing to the variety of company types represented in Vancouver’s five largest deals of the year (Elastic Path Software, BuildDirect, D-Wave Systems, Bench Accounting, MineSense Technologies). He noted the largest deals speak to a diverse ecosystem in BC, that “takes advantage of funding and ecosystem trends.”

Montreal and Quebec City

While Montreal’s number of deals remained relatively stable, 74 in 2018, up from 71 in 2017, the city saw a 29 percent increase in amount of VC dollars, totalling $1.16 billion CAD. Montreal also recorded an impressive fourth quarter, with $346 million CAD spanning 19 deals.

A large portion of that Q4 funding came from two major deals. Hopper, a travel booking platform, raised a $128 million CAD Series D round, and Milestone Pharmaceuticals closed a $80 million USD private financing.

The two companies represent two of Montreal’s most promising sectors, said Andrew Popliger, a partner in PwC’s assurance practice. “You have one sector in Montreal that you don’t see anywhere else in the country, and it’s anything in respect to travel or rentals,” he stated.

Alongside Hopper’s major Series D round, the city saw office space rental company Breather raise $60 million in equity financing and travel accommodation provider Sonder close an $85 million Series C.

The city’s biotech sector also did well over the past year. Milestone not only raised $80 million just one year after it raised $55 million USD, but also announced a phase three clinical trial for its channel blocker for stopping abnormally fast heartbeats. Fellow biotech company Inversago Pharma also raised a $7 million Series A.

Montreal’s stalwart sectors also continued to do well. Popliger estimated that almost 20 percent of Montreal’s funding deals were made up by AI and FinTech, noting that SaaS and data centre companies also racked up deals. The city also claimed Canada’s largest deal of the year, with biofuel startup Enerkem’s $287 million CAD mega-round.

Popliger called the data he sees coming out of Montreal as quite positive for the overall region.

After a couple of quieter years, Quebec City had a blockbuster 2018. With companies raising $575 million CAD over 30 deals, the city more than doubled its deals and dollars from 2017. It had its best year in VC activity since 2012, earning Quebec City a spot on MoneyTree’s list of the five most active cities in the country.

That stellar performance is largely due to two mega-deals in the city: Ocean Group’s $112 million USD round in the fourth quarter, and AI-powered commerce platform Coveo’s $100 million USD round in the second quarter, which also ranked among the five largest deals in the country in 2018.

Popliger noted, however, that major deals are the exception for the city, rather than the rule. Quebec City is still heavily a seed and early-stage market, with about 25 percent of the city’s investments in early-stage companies, Popliger said, stating that he hopes to see that translate into mega deals as the ecosystem grows.

Calgary

Calgary hit a six-year high for both dollars and deals in 2018, with companies bringing in $169 million CAD over 20 deals, representing a 22 percent increase in VC funding from 2017.

“I think 2018 and 2019 have been blowout years, it’s been really positive in the technology ecosystem.”

“I think 2018 and 2019 have been blowout years, it’s been really positive in the technology ecosystem,” said Joon Chan, the technology leader for PwC Calgary’s assurance practice. “Calgary has seemed to be one of the best kept secrets in Canadian technology, but with some of this activity in the past six to eight months, it’s actually showing up more.”

Chan noted that Calgary also saw strong merger activity in 2018, including 3esi-Enersight acquiring Palantir Solutions to become Aucerna in July, Quad-C Management acquiring S.i. Systems in late December, and Drilling Info acquiring Cortex Business Solutions in the same month. That has continued into 2019, with Morgan Stanley’s $1.1 billion acquisition of Solium Capital, a SaaS company that helps companies manage their employee stock options. While those mergers aren’t captured in the MoneyTree report, Chan said, they’re also indicative of a thriving ecosystem.

“I think what’s really interesting is you’re seeing a lot of activity, not just through MoneyTree but through other avenues as well, private equity, M&A, all that stuff,” Chan said. “What that’s saying is, the tech sector [is] growing. There’s a lot happening here.”

Chan said he is also paying attention to the inflow of talent from other sectors. He noted that a downturn in the province’s oil sands sector has caused “a change in our economy,” freeing up talent from those companies.

He cited MobSquad, a Calgary-based startup that connects Silicon Valley startups to Canadian data scientists and software engineers available for remote work, as one potential beneficiary outside of tech companies themselves. MobSquad, which launched in October, was the first to qualify for a $1.5 million grant from the Opportunity Calgary Investment Fund, and raised $11 million from Relay Ventures, Panache Ventures, Mindset Venture Group, and others.

“I think that we’re really on the upswing in terms of our tech sector [in Calgary],” Chan said. “Seeing what’s happened between 2017 and 2018, there’s a lot of momentum.”