BC venture deal volume dropped to new low in Q3, but total funding shows a healthy ecosystem

Hockeystick BC

Although the number of venture deals in British Columbia fell significantly in the third quarter of 2020, total funding raised by startups in the region indicates a healthy ecosystem, according to Hockeystick’s BC Tech Report.

“Aside from Q2, this was the highest quarterly value in the last year.”

Q3 continued BC’s downward trend in deal volume. A total of 23 rounds were closed in the region, down 42 percent from the previous quarter of 2020. Deal volume in BC has declined by 71 percent since Q3 2019 and 74 percent since the region’s previous high, 90 deals in Q2 2019.

While both funding raised and deal volume decreased from Q2 in BC, total funding in Q3 was still higher than two of the previous three quarters. Hockeystick noted that Q3 saw more funding concentrated into higher-value deals.

High level HS BC Q3

While both funding raised and deal volume decreased from Q2 in BC, total funding in Q3 was still higher than two of the previous three quarters. (Source: Hockeystick)

Sumeet Pelia, director of research at Hockeystick, said that the increase in dollars invested per deal was a sign of a healthy quarter. Overall, startups in the region raised a total of $287 million over Q3 2020, a 26 percent decrease from the previous quarter.

“[Total funding] this quarter trailed a massive Q2, but still came in strong at $287 million,” said Pelia. “Aside from Q2, this was the highest quarterly value in the last year, evidence towards a robust and healthy ecosystem.”

Hockeystick’s data is sourced through exclusive partnerships with organizations like the Canadian Venture Capital and Private Equity Association (CVCA) and the National Angel Capital Organization (NACO). Hockeystick also compiles data from startups using its platform, as well as public data sources.

Though deal volume was low in Q3 2020, investor participation in BC remained high. Fifty-eight investors participated in venture rounds, an 18 percent increase from the last quarter. Notable investors included Vancouver-based Rhino Ventures and the Business Development Bank of Canada.

The COVID-19 pandemic brought a slew of changes to the investment process in the quarter, most disruptive being startups closing entire rounds of funding without meeting their investors in person.

RELATED: Nearly half of Canadian VC firms have seen a decline in deal flow during COVID-19

Caterina Papadakos, the recently appointed director of technology banking for Western Canada at Silicon Valley Bank, said that these broader sectoral changes had a material impact on deal flow in BC (Silicon Valley Bank is a sponsor of Hockeystick’s BC technology report).

Papadakos noted that in addition to deals closing remotely, the typical courting process between entrepreneurs and investors, such as networking events, have also moved online, which means that deals can take longer to complete.

“Known companies with repeat founders, or founders who had been fundraising before the pandemic, have had an easier time adapting and completing rounds,” she added.

Papadakos also noted that deals involving corporate strategic investors have been put on hold due to the pandemic, as those firms focus on their core business for the time being.

COVID-impacted verticals perform

Life sciences, FinTech, and EdTech were all top-performing verticals in BC during the third quarter. They were also sectors significantly impacted by the COVID-19 pandemic.

Deal volume has declined by 74 percent since the region’s previous high, 90 deals in Q2 2019.

Startups in the life sciences sector continued to dominate in funding, continuing the trend from Q1 and Q2. Chinook Therapeutics’ $104 million USD ($143 million CAD) private placement, which accounted for nearly half of the region’s total funding, was also the largest deal of any vertical in the quarter. Chinook raised its financing ahead of a merger and debut on the NASDAQ.

The deal echoes another late-stage life sciences raise: AbCellera’s $144 million Series B, which was BC’s largest venture deal in Q2.

FinTech was the most active vertical in terms of deal volume in Q3, and the second leading driver of total funding, with startups in the sector raising a total of $69 million. The largest of those deals was Conexiom’s $40 million strategic financing round.

RELATED: Vancouver FinTech startup working with financial institutions to facilitate federal COVID-19 loans

EdTech was the third leading driver of total funding with $29 million raised. One notable deal from the sector included Thinkific’s $22 million growth financing round. The startup reported a 200 percent increase in online courses being created on its platform since March, and also claimed 150 percent year-over-year revenue growth.

Fewer seeds, more scale in Q3

Approximately 17 percent of rounds closed in Q3 were classified as Series A rounds, raising $35 million, which Pelia described as strong.

At the same time, Hockeystick found that there were fewer seed rounds closed in Q3 than in previous quarters. Approximately one-quarter of deal volume in Q3 2020 consisted of seed and pre-seed deals.

“This was not the case in Q1 and Q2, which saw much higher seed activity,” he said. “Q4 will be tracked closely to see if Q3 was an anomaly or a trend.”

Stage HS BC Q3

Approximately 17 percent of rounds closed in Q3 were classified as Series A rounds, raising $35 million, which Pelia described as strong. (Source: Hockeystick)

A substantial share of deals (52 percent) closed in BC during Q3 2020 were undisclosed ventures, meaning the stage was not revealed. Those undisclosed venture rounds also contributed to 80.7 percent of all funding in the region for the quarter. Chinook’s $109 million round contributed to the disproportionate share of deal volume, as did Thinkific and Conexiom’s rounds.

Pelia noted that although round type was not consistently disclosed, there were six to eight deals that could be characterized as scale-up value deals, accounting for approximately 25 percent of deal volume.

“That’s a healthy ratio of companies that are readying themselves for the mega-deals that we have also seen consistently in this ecosystem,” he noted.

One theme that has emerged in the BC tech ecosystem is the need for more scale-up funding. Jill Tipping, CEO of the BC Tech Association, has spoken about the struggle of regional tech companies to scale. The BC Tech Association is currently lobbying the federal government for a Scale-Up program similar to that of Ontario.

Hockeystick’s BC Tech Report, presented by Silicon Valley Bank, can be found here.

BetaKit is a Hockeystick Tech Report media partner.

Isabelle Kirkwood

Isabelle Kirkwood

Isabelle is a Vancouver-based writer with 5+ years of experience in communications and journalism and a lifelong passion for telling stories. For over two years, she has reported on all sides of the Canadian startup ecosystem, from landmark venture deals to public policy, telling the stories of the founders putting Canadian tech on the map.