Canadian venture capital investment hit an astounding mark this past year, increasing 215 percent from 2020.
Venture capital investment in 2021 hit $14.2 billion, following a trend of record years for venture investment that blew all past years out of the water.
According to the new Canadian Venture Capital and Private Equity Association (CVCA) report, it wasn’t just the dollar amounts that increased. Canada also saw more deals being done across financing stages, from seed to growth equity.
In 2021, the $14.2 billion (all numbers CAD) was invested across 751 deals, compared to $4.5 billion into 513 deals the year prior (note: numbers may differ from past reporting based on updated CVCA data). Venture debt also increased by 31 percent, with $493 million across 95 deals.
CVCA CEO Kim Furlong expressed excitement about the results, noting they point to a healthy investment ecosystem. However, Canada still lags behind the United States relatively speaking, and Furlong says more work needs to be done to get the country’s venture market on par.
Growth across the board
Furlong noted the large deals, like Wealthsimple, helped get Canada to the $14.2 billion, but specifically pointed to the amount of activity from early to late stages as a sign of a healthy ecosystem.
“We saw a 165 percent spike in early-stage and seed [deals], which is so important because if you want to continue to add this growth activity you need to seed the garden,” she said. “We need to continue to have a pipeline of potential companies that will continue to grow. So it signals an extremely healthy ecosystem that you saw a pretty equal activity level in all three segments.”
Furlong’s statements come after ongoing concern that seed-stage investment in Canada is getting left behind. In third-quarter 2021 results, the amount of seed investment in Canada failed to increase commensurate with the rest of the stages. Furlong commented at the time, “We simply need more focus on seed stage.”
This latest report shows that the seed stage saw the most amount of deals done last year, with 321 seed deals, 292 early-stage, 91 late-stage, and 25 in growth equity. The seed stage also saw the biggest jump (105 percent year-over-year) in the number of deals.
Keep it growing
Furlong attributes the venture growth to foreign investment, the tech ecosystem’s maturation over the last decade, and corporate buy-in.
CVCA found an increasing level of foreign VCs invested in Canadian companies last year. Furlong noted that as tech ecosystems outside of Silicon Valley have matured, more capital is going into non-Silicon Valley ecosystems, Canada included.
“It used to be a Silicon Valley game and no longer is,” she said. “Every country, from Israel to Singapore; I have meetings with counterparts from all over the world, from Hong Kong to Brazil to South Africa, and everyone has a VC [and] PE [private equity] portion of capital being invested … all of us are seeing an increase.”
While United States investors still dominated the list of most active foreign VCs in Canada, the CVCA report states it was German-based Global Founders Capital that did the most number of deals for one firm with the size of total rounds coming to $577 million across 13 deals.
The active VC market in Canada was also driven by the growth of the tech sector, with approximately 60 percent of all venture deals in the sector this past year. The Information, Communications & Technology (ICT) sector pulled in more than $9 billion of an overall $14.2 billion.
The maturation of the tech sector over the last decade is reflected in the number of large, later-stage deals being done and exits to the public market.
Last year saw the highest number of megadeals (more than $50 million) ever. Those deals include Wealthsimple, Trulioo, Dapper Labs, and ApplyBoard. The largest disclosed exits include Verafin’s sale to the Nasdaq (closed early 2021); Coveo, Dialogue, and Q4 Inc.’s IPOs; and Redlen’s sale to Canon.
The exits amounted to a 92 percent increase in the number of exits but a 15 percent decrease in total value. 2021 set a record for the most initial public offerings (IPOs) at eight, but with $2.9 billion in value, that is a 68 percent decline compared to last year’s total IPO value.
“2021 trends indicate that there are more VC-backed companies going public with lower valuations, a trend that may continue into 2022,” the report stated.
Furlong also pointed to increased buy-in from corporations as another reason for the exceptional increase in venture capital investment. The CVCA noted Deloitte Ventures, Emmertech, and Spin Master Ventures as such examples. Last year also saw the likes of Thomson Reuters unveiling a $100 million USD corporate venture capital fund.
The CVCA’s data on the PE space also shows a solid year for those types of investments. While not as record-breaking as VC, the PE market returned to levels on par with pre-pandemic and the 5-year average, with $18 billion invested across 799 deals. This represents the highest deal count on record, and the year also saw the highest number of exits and IPOs on record with 88 exits overall (six of which were IPOs). One of the biggest deals was Affirm’s acquisition of Paybright.
While the record venture investment year is notable, Furlong says Canada still has “significant room for growth.”
“We’re .. not even five percent of the US [venture] market; we represent about 4.5 of the US market,” she said. “So our ambition should not be to only celebrate this year, which it was a fabulous year and I will I’ll celebrate it, but I’m also applying some perspective in terms of our trajectory and the work that remains to be done.”
Canada’s record $14.2 billion sits in the shadow of America’s own record year of $329.9 billion USD – double the previous year. Furlong argues that Canadian investment should be one-tenth of the US market given our relative size.
“The year I came in [to CVCA] … we reported $3.7 billion, and at my second board meeting I said to the board, ‘we should have the ambition to be a tenth of US market because we’re a tenth in everything else.’ And at the time the US was at $130 billion,” the CVCA CEO said. “We passed that objective this year, but then you look at the US and they’re at $329 billion. So now our ambition should be to be a $30 billion market.”
CORRECTION 07/03/2022: This story previously incorrectly stated that Global Founders Capital invested $577 million across 13 deals. That is incorrect and has been updated to note that the $557 million is the size of the total rounds invested in by the firm.