Provincial investment agency Investissement Québec (IQ) reported a 4.9-percent loss on its direct venture capital (VC) and indirect fund investments last fiscal year, reflecting market volatility and struggling fund performance.
IQ’s losses in the venture asset class mirrored stagnant returns across the agency overall. According to its annual report for the year ended March 31, IQ recorded 0.3 percent returns, or roughly $13 million, coming in well below Finance Minister Éric Girard’s forecast of $194 million.
Indirect investments through IQ’s fund investment activity, where the agency acts as a limited partner (LP), eked out a small return of $4 million.
“Investissement Québec’s performance was marked by an uncertain economic environment and unstable global conditions,” the report reads in French. “The fourth quarter was affected by a significant market downturn, accentuated by the repercussions of reciprocal tariff impositions.”
A slowdown in private investment amid investor caution, credit losses as economic outlooks worsened, and a stock market dip last quarter all contributed to the middling performance, the report said.
The Québec-specific report comes as VCs across Canada grapple with performance anxiety, weak returns, and a difficult fundraising environment. A recent report from the Business Development Bank of Canada (BDC) Capital found that the one-year and three-year initial rate of return (IRR) for Canadian-headquartered VC funds was negative. The 10-year IRR was at 10 percent, down from 11.7 percent last year.
In addition to its role as an economic development agency, IQ has a mandate to notch long-term average returns equal to or above that of the government’s borrowing costs. The 0.3 percent result did not reach last year’s borrowing rate, which fluctuated between 3 and 4.3 percent.
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Over the long term, IQ’s five-year average returns are at 6.2 percent, the report said, which is above the government’s 2.2-percent average borrowing rate. This five-year average includes the mammoth 25-percent yields from 2021, however, when the exit market rebounded and company valuations soared.
With its mandate of economic development, IQ has a significant foothold in the Québec VC landscape. VC and fund investments comprise 17 percent of the agency’s portfolio and are worth $1.2 billion. Along with administrative fees, IQ lost $72 million on the year for VC and fund investments.
Direct VC investments suffered a loss of $65 million, the report said. IQ delivers its direct investments through programs such as Impulsion PME, the early-stage investment-matching program that was shuttered last fall and recently revived.
Some of IQ’s direct investment portfolio companies were hit hard by the tariff-related market downturn, including e-commerce company Lightspeed, in which IQ has invested more than $100 million. By March 31, Lightspeed’s stock price on the Nasdaq was trading at $8.75 USD, down more than half since the beginning of the year. The company scaled back its revenue outlook in March amid tough macroeconomic conditions, but later revealed it had reached $1 billion in revenue.
Indirect investments through IQ’s fund investment activity, where the agency acts as a limited partner (LP), eked out a small return of $4 million, improving upon a loss of $34 million the year before. IQ attributed its low fund returns to losses from certain funds outweighing the positive impacts of healthy returns from other, better-performing funds.
IQ acts as an LP in 40 investment funds, to the tune of $1.2 billion, including some from Inovia Capital, Panache Ventures, and Novacap. Over the past year, it invested $130 million across five new funds and three follow-on investments.
Feature image courtesy Investissement Québec.