Despite pandemic, Canadian VC investment remained high in 2020


Canada experienced its second-highest level of venture capital (VC) investment on record last year, according to the most recent Canadian Venture Capital and Private Equity Association (CVCA) report.

The VC market report, released today, found that Canada saw $4.4 billion CAD in total VC investment across 509 deals in 2020. By total VC dollars invested, 2020 beat the previous five-year average of $3.8 billion. However, that total was spread out across a smaller number of deals.

“[It was] surprising to where and how I was feeling in Q2, but not surprising if you’d take a pause and look back.”

Despite early signs of a decrease in deal flow due to COVID-19, 2020 was the second-highest year on record, following 2019, in terms of total VC dollars invested in Canadian companies. In 2019, which CVCA considers “an outlier year marked by megadeals,” Canada saw $6.2 billion in VC investment across 560 deals, according to the latest data.

The second quarter was 2020’s most active, with the latest data showing $1.69 billion in total VC investment across 139 deals. This total was followed by a dip in the total amount of VC investment in Q3 and Q4, but a less noticeable decline in deals made, as the third and fourth quarter of 2020 saw 117 and 126 deals, respectively.

Kim Furlong, CEO of CVCA, called the results for 2020 both remarkable and surprising. “[It was] surprising to where and how I was feeling in Q2, but not surprising if you’d take a pause and look back on which companies did really well during the pandemic,” she told BetaKit, noting the investment numbers reflect companies that were able to provide digital services in a time when digital transformation has been key to success.

Notably, information and communications technology (ICT) companies received more than half of total VC dollars raised last year ($2.4 billion). While that number is down from 2019’s high of $4 billion, it still represented the largest amount invested by sector. The next highest sector was life sciences, which pulled in $1.1 billion in 2020.

CVCA’s full-year data for 2020 pointed to the continuing trend over the last year of an increase in later-stage investing. Late-stage investments accounted for the most VC investment in 2020, whereas 2019 was driven by investments in early-stage companies.

Some of last year’s largest VC deals included Abcellera’s $144 million Series B round, Wealthsimple’s $114 million equity raise, Miovision’s $120 million round, and ApplyBoard’s Series C, which pulled in $170 million. The list of top 10 raises was rounded out by Top Hat and Symend, which both secured significant investments in 2020.

Amid the uncertainty of COVID-19, last year saw many VC firms in Canada double-down on their existing portfolio. With this trend in mind, Furlong noted an increasing number of firms eyeing growth-stage funds. Despite the increase in later-stage investments, growth equity investments actually decreased following 2019’s mega-deals, while seed investing remained steady year-over-year.

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Seed-stage investments saw the highest average deal size on record at $2 million, a 41 percent increase compared to 2019. Furlong pointed to the increase in average deal size as a positive sign. At the same time, Series A and B investments dropped 33 percent compared to 2019. “With 2020’s level dropping below 2017 levels, it signifies a potential decrease in Series A and B valuations in Canada,” the report stated.

“We’re still a growing system, I don’t think that we’re by far a mature system,” said Furlong. “There’s some great signs … [but] we still have a lot of work to do.”

“When it comes to the stage,” she said. “We can’t say this enough, [investors] can’t only fund late stage and growth and not fuel [their] pipeline and make sure like the early stage is getting enough money.”

Furlong also advocated for the Government of Canada to create additional streams of and continue investment in its Venture Capital Catalyst Initiative (VCCI) program. Noting that much of the current capital supplied to VCCI-backed firms has been deployed or committed, the CVCA CEO highlighted the need for the government to continue to offer such programs in order for the Canadian ecosystem to reach a level of maturity.

“The long-term health of the Canadian innovation ecosystem, including venture investment, is critical as we continue to navigate the impacts from the COVID-19 pandemic,” said Furlong.

Two interesting data points from 2020 were the number and type of VC-backed exits. While the 38 exits that took place in 2020 are slightly below the five-year average of 40, last year saw the highest number of initial public offerings (IPO).

Of the top VC-backed exits last year, three of seven were to public markets. CVCA found that last year saw four VC-backed IPOs, which generated a combined $9.2 billion, the highest amount on record by far. 2020’s largest IPO was Vancouver biotech company Abcellera, which raised $555.5 million and was also the biggest Canadian VC-backed exit to date.

Additionally, the report found the exit market saw the highest value of private equity (PE)-backed IPOs on record, with four raising a total of $13.9 billion. Nuvei, notably, went public in 2020, becoming the largest tech IPO in Canadian history.

In recent months, Canadian tech startups have shown a growing interest in the public markets. According to CVCA, the momentum of VC-backed exits is on track relative to previous years. This trend appears to have continued in 2021, as Vendasta, Payfare, Dialogue, Mednow, and KITS Eyecare have all either gone public or filed for public listing in recent months.

RELATED: OMERS survey finds dealflow rose or held steady during COVID-19 for most Canadian VCs

By city, Toronto remained the most popular site of VC activity in 2020 with $1.2 billion across 164 deals. This was followed by Montréal ($856 million), Vancouver ($767 million), and Calgary ($353 million).

In terms of the most active investors, government fund BDC Capital led the way with $910 million invested last year. This was followed by private firm Inovia Capital, which invested $704 million. However, BDC Capital spread its investments across 111 rounds, whereas Inovia invested in only 18. Inovia recently launched its second $450 million growth fund and has been doubling down on portfolio investments like Symend and Snapcommerce.

CVCA also released its PE market report today, which found that 2020 had the third-lowest level of annual PE investment on record, trailing the previous five-year average by 33 percent. 2020 saw $14 billion in total PE investment across 634 deals, with five first-quarter deals accounting for half of all PE dollars invested in Canada last year.

While Furlong called the decrease disappointing, she noted that excluding the $5 billion PE buyout of WestJet Airlines in 2019, the numbers are more in line year-over-year.

At the same time, the number of PE debt deals rose to “record levels,” signalling “a potential shift in investor risk during 2020 when the need for liquidity is heightened in portfolio companies,” according to the report. The PE market report also documented a rise in privatization deals as some sectors sought to de-risk themselves from public market volatility.

Meagan Simpson

Meagan Simpson

Meagan is the Senior Editor for BetaKit. A tech writer that is super proud to showcase the Canadian tech scene. Background in almost every type of journalism from sports to politics. Podcast and Harry Potter nerd, photographer and crazy cat lady.

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